Ethanol subsidies targeted for budget savings?

posted at 3:35 pm on April 18, 2011 by Ed Morrissey

With sacred cows like Medicare and Medicaid suddenly up for discussion in terms of budget cuts, Republicans in Congress want to take aim at another — and it’s going to be a toss-up to see which draws more demagogic fire.  The GOP wants to defund ethanol subsidies, which would save $60 billion in ten years, and Senator Tom Coburn wants to end a critical tax credit as well:

The federal government has given a nearly $6 billion tax credit to American producers of the bio-fuel every year since 2005, and doled out additional billions in special grants and loan guarantees for more than 30 years.

Now a growing number of lawmakers, including several from agricultural states, say it’s time for at least some of the special treatment to end.

“I’ve talked to ethanol people. I’ve said that this is something that’s got to make economic sense,” Indiana RepublicanSen. Dan Coats told ABC News of the tax credits he’s previously fought to defend. …

Oklahoma Sen. Tom Coburn, who’s part of the bipartisan “gang of six” working to solve the budget crisis, has proposed immediately eliminating the 45-cents-a-gallon tax credit. The move would, in effect, force ethanol producers to pay more in taxes and give the government a $4 billion boost in revenue through the end of this year.

“Ethanol subsidies are a spending program wrongly placed in the tax code that increases the burden of government, keeps tax rates artificially high, and forces consumers to pay more for food and energy,” Coburn said in a letter last month in response to criticism from an anti-tax group.

Assuming that the tax credit stays in place, it will have cost us almost $31 billion since it began in 2005.  Even if the credit made sense, a GAO report from March explained that the time has passed for it.  The industry needed to make the product price competitive while it invested heavily in its capital infrastructure, but that investment has come and gone.  Now those credits work as a purely winner-picking mechanism that makes ethanol falsely competitive with other energy sources.

But can the GOP summon the courage to end the program?  The White House will almost certainly cast this as an attack on farmers, and some farmers may well agree.  Iowa voters will put pressure on Republican presidential candidates to oppose the cuts, as the subsidies and tax credits benefit farmers while driving up food prices.  Ben Nelson in Nebraska and Claire McCaskill in Missouri may not have much chance of winning another term in the Senate, but they may start flogging the subsidies as a lever to rescue their prospects among rural voters. Even apart from the farm vote, Barack Obama will undoubtedly hammer Republicans as tools of Big Oil attempting to put an end to the green energy Nirvana that awaits just around the next big-government-program corner.

We should be cutting ethanol subsidies — and a lot of other subsidies as well.  This is as good a place to start as any.

Related Posts:

Breaking on Hot Air