Candidates Must Avoid The Ethanol Temptation On Campaign Trail

Pete Sepp President, National Taxpayers Union
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The 2016 election may still be a year and a half away, but that hasn’t stopped a dozen or more presidential hopefuls from jet-setting between Nashua, New Hampshire and Newton, Iowa in pursuit of that crucial first round of primary voters, caucus goers, and early endorsements.

As they set out on the seemingly permanent campaign circuit, it’s important they avoid the temptation to engage in a narrow electoral calculus that could translate into broader misery for our economy: one that attempts to score political points by advocating another round of picking winners and losers in our nation’s already over-gamed tax code.

For many decades, the race for the White House has started in earnest at the most hyperlocal of levels scattered across the state of Iowa. And when candidates come to Iowa, they can expect more than just pork chops and sweet corn. They can also expect highly astute voters who have spent a lifetime being wooed by some of the most powerful people in the world. They can likewise expect gaggles of political reporters who are watching every move and reading every statement in search of their next story.

Furthermore, they must face pressure to make some kind of appropriately deferential nod in the direction of the Midwest’s powerful corn ethanol industry. Unfortunately that can mean pressing for energy policy shifts whose impact on American consumers and businesses across the country could prove highly distortive and detrimental.

One such scheme – discussed among several presidential candidates when visiting the Hawkeye State – would increase taxes on the American oil and gas industry as a means of funneling more funding to ethanol producers or infrastructure operators. For example, during his first Iowa campaign stop, Dr. Ben Carson pushed for revenue generated through increased taxes on oil and gas producers as a means of funding additional ethanol fueling stations. Not all of the hopefuls have leaned in this direction – Senator Ted Cruz declined to take the bait and instead called for an end to the market-meddling Renewable Fuel Standard, which drives so much of ethanol’s momentum.

All too many efforts to tax oil and gas more heavily hinge on the misconception that the industry receives special treatment or “subsidies” from the government. In reality, the provisions most often targeted – primarily by President Obama and his congressional allies, but also presidential office seekers – are cost recovery measures either utilized throughout our economy or employed through equivalent provisions in the Tax Code for other lines of business. For instance, the Section 199 manufacturers’ deduction is available to job-creating firms in numerous industries, yet some tax plans would forbid only oil and gas companies from claiming it.

Ironically enough, ethanol has subsisted largely on favors from the federal government and the states – today mostly through renewable fuel mandates, but in the past through tax credits and other artificial means. Meanwhile, according to an analysis published in the New York Times the energy sector as a whole (consisting mainly of fossil-fuel-based concerns) paid a significantly higher effective rate of tax than the average for companies on the S&P 500.

As the campaign season matures, hopefully clear-eyed assessments like these will begin to guide policy debates rather than cloudy rhetoric. For candidates on either side of the aisle seeking to define their own agenda of overhauling the Tax Code, efforts to levy punitive taxes on oil and gas represent a drastic step in the wrong direction. They would be far better served focusing on shifts that make our system more competitive and reduce the prevalence of discriminatory tax policy that treats one sector differently from another. Even at this early entrance ramp on the road to the White House, they can and should be mindful of the economic dead-end that would lie ahead for America, if their talking points were to become the law of the land.

Pete Sepp is President of the 362,000-member National Taxpayers Union (NTU).