Senate approves cut in ethanol subsidies, votes for Feinstein amendment

June 16, 2011

The Senate on Thursday approved an amendment that would end tax credits for ethanol that refiners blend into motor fuel in a vote closely watched as a sign of whether Congress can muster consensus on tax issues in the face of massive deficits.

In a 73-to-27 vote, the Senate backed an amendment by Sens. Dianne Feinstein (D-Calif.) and Tom Coburn (R-Okla.) that would abruptly eliminate the tax credits, which cost the federal government about $6 billion a year, on July 1. In addition to ending a 45- cent-a-gallon subsidy, the amendment would eliminate the 54-cent-a-gallon protective tariff that discourages imports.

The victory could prove symbolic since the amendment is attached to the Economic Development and Revitalization Act, which has little chance of winning final approval in the Senate. Moreover, the amendment would not eliminate the federal mandate that sets minimum quotas for ethanol use by refiners.

But some lawmakers and lobbyists said the symbolism mattered, reflecting a new willingness among Republicans to re-examine special-interest tax breaks that offer little economic benefit but cost billions of dollars a year.

With Democrats demanding fresh revenues in debt-reduction talks led by Vice President Biden, many Senate Republicans appear more open to finding common ground by ending some tax breaks — defying anti-tax leaders like Grover G. Norquist who insist that revenues should rise only through economic growth.

After the vote, Norquist’s group Americans for Tax Reform said that if senators who voted for the Feinstein-Coburn amendment also backed a Sen. Jim DeMint (R-S.C.) measure eliminating estate taxes, they would not be considered to be in violation of his group’s “taxpayer protection pledge.”

“Obviously, I’m very sympathetic with keeping taxes low. That’s part of our brand,” said Sen. John Cornyn (R-Tex.), who heads the campaign arm for Senate Republicans. “But the idea that you can’t do tax reform by eliminating unnecessary subsidies to different sectors of the economy seems to me like it’s a bridge too far.”

Sen. Lamar Alexander (R-Tenn.) is working on legislation that he said would wipe out an array of tax subsidies for other forms of energy.

But a subsidy’s virtue is in the eye of the beholder. Cornyn has opposed cutting tax incentives for oil drilling and Alexander has supported federal loan guarantees for new nuclear plants. Many members who supported Feinstein’s amendment back renewable energy incentives.

Even if the dam is breaking in the Senate, House Republicans adamantly oppose anything designed to boost federal tax collections. And it’s not clear that lawmakers in either chamber are ready to tackle the biggest and most popular tax breaks, such as the deduction for home-mortgage interest, the tax-free treatment of employer-provided health care or the child credit.

Thursday’s Senate vote, in fact, may say more about the antagonism in Congress for the ethanol credit. Among ethanol supporters, geography trumped party. Senators from farm states — Iowa, Illinois, Indiana, Ohio, Nebraska, the Dakotas, Kansas and Minnesota — voted against the amendment regardless of party, including vociferous debt reduction advocates such as Sens. Rob Portman (R-Ohio), Mark Kirk (R-Ill.) and Mike Johanns (R-Neb.)

The vote came just two days after the Senate rejected a bid by Coburn to end the ethanol tax credit. Democrats withheld their support for what they said were procedural reasons.

Supporters of the ethanol tax credit say it helps corn growers while reducing American reliance on petroleum imports. The U.S. ethanol industry produces about 900,000 barrels a day. Because ethanol has a lower energy content than gasoline, that output cuts U.S. oil imports by about 600,000 barrels a day.

But critics say the ethanol credit is a burden on taxpayers and food consumers and that the industry is mature enough to survive on its own.

The Renewable Fuels Association lamented the “shortsightedness of this vote, particularly as this same body voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry.”

The RFA added that since “the underlying bill to which this amendment is attached is unlikely to make it to the president’s desk, this vote was a freebie with no real consequences.”

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