Thursday, June 16, 2011

Ethanol -- Too Corny

Senate Backs Repeal of Ethanol Tax Credit

WASHINGTON—The Senate voted Thursday to repeal a $6 billion tax credit for ethanol producers, a move that could signal the end of some federal subsidies as part of an eventual budget and debt-ceiling compromise.

A bipartisan group of senators—40 Democrats and 33 Republicans—joined together in a 73-27 vote to support an end to the subsidy. The subsidy gives refiners a 45-cent-a-gallon tax credit for blending ethanol into gasoline and has been a factor behind higher corn prices in recent years. Sen. Chuck Grassley (R., Iowa), a longtime supporter of the credit, objected to the measure.

The U.S. ethanol industry is protected by a tariff of 54 cents a gallon on imported ethanol and that, too, would end under the Senate measure.

The ethanol provision was added to unrelated legislation that would renew a program directing federal funding to deprived parts of the country to help local governments attract private investment. Even if approved by the Senate, the legislation isn't expected to be taken up by the House, possibly limiting the vote to symbolic significance.

The vote could prove important in the ongoing budget negotiations. By voting in favor of ending the subsidy, it opens Republicans up to the charge that they are supporting tax increases—ending the subsidy would result in higher taxes on ethanol producers. Republicans have rejected higher taxes as a component in any deal on the budget deficit and accumulated debt.

Democrats, led by Sen. Charles Schumer (D., N.Y.), argued this week that it would be impossible for Republicans to maintain that position after the vote this week. But Sen. Tom Coburn (R., Okla.) said he believed an end or reduction to the subsidy would form part of the final budget deal.

"It should send a good signal—if you had $6 billion that you had as an earmark in an appropriations bill that was going to the [ethanol] blenders and we took it away, nobody would've ever said anything about taxes," Mr. Coburn said.

An earlier vote on ending the ethanol subsidy failed on Tuesday, but that was largely because of Democratic anger at the manner in which the measure was brought to the floor.

The amendment was sponsored by Sen. Dianne Feinstein (D., Calif.) who has long pushed for an end to the tax credit.

Senators are now voting on a separate measure that would prevent federal funds from being used for ethanol storage facilities or blender pumps, another attempt at limiting federal support for production of the fuel alternative. That measure is backed by Sen. John McCain (R., Ariz.).

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