June 15, 2011

IT’S ALWAYS RISKY to predict fiscal sanity in Washington, but perhaps a tiny bit less risky now. Specifically, subsidized agribusiness is under siege. Republicans and Democrats discussing plans to trim the deficit and raise the federal debt ceiling are reportedly set to take on the direct-payment program for commodity producers, which gives $5 billion per year to disproportionately wealthy farmers regardless of market conditions. The GOP offer is to slice $30 billion over 10 years. That’s 12 times the cut President Obama proposed in his 2012 budget, but at least both parties agree on the principle — which should be a no-brainer given that the Agriculture Department projects a 20 percent increase in farm income this year.

Meanwhile, the ethanol lobby is fighting a rear-guard action to save its corporate welfare, in the form of a 45-cent tax credit for each gallon of ethanol blended into gasoline at the refinery. That works out to roughly $6 billion per year and $1.78 per gallon of gasoline saved, according to the Congressional Budget Office. But who’s counting? For corn growers and other passengers on the ethanol gravy train, the point is to make money, not to replace foreign oil or eliminate greenhouse gases as cost-effectively as possible. In any case, federal law mandates ever-increasing biofuel usage, up to 36 billion gallons by 2022 — so it’s not as if ethanol producers would be abandoned without the tax credit.

The ethanol credit is in trouble largely because Sens. Tom Coburn (R-Okla.) and Dianne Feinstein (D-Calif.) are pushing to end it starting July 1, six months earlier than scheduled. Mr. Coburn persuaded some 34 Republican senators to vote to end a filibuster against the amendment on Tuesday. Alas, the filibuster succeeded, by a vote of 59-40, because farm-state senators of both parties don’t want to kick the ethanol habit — and because Senate Majority Leader Harry M. Reid (D-Nev.) felt it was improper, procedurally, for Mr. Coburn, rather than Mr. Reid, to invoke cloture. On this basis, many Democratic ethanol skeptics also voted to stall the Coburn-Feinstein bill — even though the bill’s backers think that if the entire Senate were free to vote on the merits, as it may be next week, a majority would vote in favor.

Now for the depressing part: Instead of encouraging the anti-ethanol trend, the Obama administration is equivocating. Back in April, Agriculture Secretary Tom Vilsack pitched a plan to gradually replace the tax credit with a different set of subsidies for ethanol consumption, including federal funding for more pumps capable of delivering 85-percent-ethanol fuel at stations around the country. A similar approach is embodied in an industry-backed alternative to Mr. Coburn’s measure sponsored by Sens. Amy Klobuchar (D-Minn.) and John Thune (R-S.D.). That bill would cut the cost of the ethanol credit by $2.5 billion — but spend $1.5 billion of the savings on flex fuel pumps and other “infrastructure.”

One obvious problem is that only about 8 million of America’s 250 million passenger vehicles can run on 85 percent ethanol, and raising that number significantly would cost the already troubled auto industry a fortune. Another is that so many in Washington are still shielding this long-favored industry from a desperately needed dose of market discipline.