With lawmakers desperately working to shave federal budget deficits, the Senate is debating a measure to eliminate ethanol tax credits that pay the oil industry $5 billion a year. The biggest defenders of the subsidies, however, include farm belt conservatives leading the charge for less government.
Sen. Tom Coburn, R-Okla., is forcing a vote on a measure Tuesday that would repeal the credits. Coburn says they are wasteful subsidies for an industry that no longer needs them.
"The days of placing spending programs in the tax code and giving them holy status are over," Coburn said. "Ethanol is bad economic policy, bad energy policy and bad environmental policy."
Coburn's measure is supported by conservative groups such as the Club for Growth and environmental groups such as the Sierra Club.
"The ethanol subsidy is an abomination, a bad deal for taxpayers and destructive to economic growth," Club for Growth President Chris Chocola said.
Ethanol supporters argue that with gasoline prices hovering near $4 a gallon, it is no time to repeal tax credits that encourage alternative fuels.
"Ethanol is the only viable alternative to imported oil available to us today, an inconvenient truth for those seeking to protect the oil status quo," said Bob Dinneen, president of the Renewable Fuels Association.
The Obama administration opposes the measure, White House spokesman Clark Stevens said. Increased production of biofuels is an important part of President Barack Obama's plan to reduce oil imports by a third by 2025, Stevens said. The administration is open to new types of incentives, but opposes a straight repeal of the tax credit.
The issue pits conservative budget cutters against other conservatives who won't support a tax increase of any kind. It also highlights the way lawmakers have used the tax code to pass what are essentially spending programs.
Ethanol is a renewable, liquid fuel additive made from fermenting plant sugars, typically from corn. The tax credit provides 45 cents a gallon to oil refiners who mix ethanol with gasoline. Corn growers support the tax credit because it helps increase demand for their crops.
"Sen. Coburn's amendment would raise the tax on domestic energy production by repealing an incentive for the use of homegrown ethanol," said Sen. Chuck Grassley, R-Iowa. "With conflicts in the Middle East and crude oil priced at more than $100 a barrel, we should be on the same side. Why would anyone prefer less domestic energy production?"
Sen. John Thune, R-S.D., said, "It seems ironic that we would be looking at legislation, at policy that would further drive up the costs of gasoline in this country."
Americans for Tax Reform, an influential conservative group led by Grover Norquist, supports repealing the ethanol tax credit, but only if the measure is offset by an equal amount of tax cuts.
Coburn's proposal would also repeal a 54-cent-a-gallon tariff on imported ethanol, which restricts imports, mainly from Brazil. Coburn is trying to attach his proposal to a bill that would renew a federal economic development program. His amendment will require 60 votes to be successful, a tall order in a Senate that is deeply divided on tax issues.
The ethanol tax credit is part of a package of business tax breaks that Congress usually renews each year. The current credit is scheduled to expire at the end of the year. Coburn's amendment would repeal it immediately.
Agriculture Secretary Tom Vilsack said Monday that the administration is open to redirecting some of the tax credit money to help the ethanol industry in other ways, but that cutting off the tax credit completely could threaten jobs and capital investment in rural communities that are already struggling.
"We don't want to cut our way out of a growth opportunity," Vilsack said.
The tax credit helped the ethanol industry take off in the 1990s. The industry also has been helped by a mandate from Congress that requires refiners to blend 36 billion gallons of biofuels, mostly ethanol, into auto fuel by 2022. Critics of the tax credit say the mandate is enough to keep the industry going.