Despite strong opposition, ethanol subsidies set to be renewed in tax deal

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In 1978, the Energy Tax Act was signed into law, and with it, government subsidies for corn ethanol. The ethanol industry existed for years on government handouts and in 2005 Congress renewed their commitment by meeting that subsidy (again) and raising it one more: a mandate that requires the annual consumption of 7.5 billion gallons of ethanol by 2012.

On Wednesday, Chuck Grassley, a Republican senator from Iowa, said in no uncertain terms that the new tax deal will include an extension of those ethanol subsidies. Grassley, who is a ranking member on the Senate Finance Committee, made the announcement despite the fact that there is strong opposition to the subsidies from Democrats, Republicans, environmentalists, and trade groups.

Last week on the Senate floor, he defended the subsidies that flow mostly to his state, and lashed out at his fellow Republicans for pushing the Senate leadership to let them expire at the end of the year.

“Earlier this week, a number of my colleagues here in the Senate, including a few of my fellow Republicans, sent a letter to the majority and minority leaders expressing their opposition to extending the tax incentives for home-grown ethanol,” said Grassley.

“Home-grown means that we’re less dependent upon people like Dictator Chavez and the oil sheiks,” continued Grassley. “It’s important to remember that the incentive exists to help the producers of ethanol compete with the big oil industry, and remember the big oil industry has been well supported by the federal treasury for more than a whole century.”

Yet in spite of his impassioned defense, it is clear the only people benefiting from the government program are the corn farmers themselves, and not many others. And even less people actually want them.

The current levels, set to expire December 31 of this year, include a 45-cents per gallon subsidy on ethanol production. For the taxpayer, that totals about $7 billion a year. On November 29, a mixed group of organizations sent a letter to congressional leadership, officially making their case against any extension.

The list included industry, environmental, and political groups like the American Meat Institute, the Oregon Dairy Farmers Association, the National Meat Association, Friends of the Earth, the World Wildlife Fund, the Sierra Club, FreedomWorks, the National Taxpayers Union, the Heartland Institute, and the Competitive Enterprise Institute. Even former Vice President Al Gore recently admitted his original support for the subsidies was a mistake.

On top of all that opposition, a group of 17 senators sent a letter to their respective party leaders urging them to allow the program to expire.

American farmers, on the other hand, are in favor of the extensions. “An extension of the current tax structure for biofuels is a good thing for the American economy and the environment,” Shawn Martini, spokesperson for the Colorado Farm Bureau, told The Daily Caller.

But the livestock industry too has vocally come out against the government subvention of a very specialized industry. Their complaint? Corn ethanol subsidies artificially raise the price of corn — the very corn they use to feed their livestock. The net effect of that, they argued, is the forced reduction of their herds.

“We know that some of the proponents of ethanol have been looking for ways to extend both the tax credit and the import tariff,” said Kristina Butts, legislative affairs director for the National Cattlemen’s Beef Association. “First of all, it’s an intervention in the marketplace, and it affects [producers’] input costs.”

Put simply, the question now is, “What gives?”

The farm states won’t let go. And Midwest senators of both parties like Chuck Grassley, Iowa Republican, John Thune, South Dakota Republican, and Tom Harkin, Iowa Democrat, are holding on even tighter.

“It’s an outrage,” Robert Bryce of the Manhattan Institute told TheDC, before promptly dubbing it the “Frankenstein fuel”.

“It just won’t die,” he said. “This is the fuel that is fed by the currency on which Washington is built — and that is pork.” Bryce went on to call the expected extension “absolutely stunning and incredibly depressing,” saying Grassley has been “carry[ing] water for the ethanol scammers for decades.”

Bryce went on to point out that according to a study he authored last October, despite the mandated use of ethanol, oil imports have not gone down. Between 1999 and 2009, in fact, oil imports have actually gone up seven-fold.

“If oil imports have indeed increased over the last decade it would not surprise me,” said Martini. “Demand has gone up exponentially. The ethanol industry, at its current size, can only offset so much.”

“One thing that would help is the EPA relaxing some of their hurdles to increasing the use of the fuel on a wider basis,” he added.

“The basic issue is that the Corn Belt has a lot of clout on the Hill,” Marlo Lewis of the Competitive Enterprise Institute told TheDC. “That’s the paradox in a democracy,” he continued, “that special interests can play a ruse.”

“But if it’s such a great bargain, why do we need a law to force us to buy it? The answer is it’s a great bargain for corn growers. It’s an incredible scam,” said Lewis. He also agreed that the fact the Iowa Caucus has so much influence in presidential politics doesn’t help things.

Because a final version of the tax deal has not yet been brokered by the White House and congressional Republicans, it’s not yet clear whether the subsidies will be extended at their current rate or at a lowered one, per a compromise bill offered by Democratic Sen. Max Baucus of Montana that would lower subsidy by 36-cents. On Tuesday, Democratic Sen. Dianne Feinstein of California hinted it may stay at current levels to appease Democrats who are angered over the tax deal.

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