New York Times Ethanol Subsidy Editorial Misleads

It is not the government's place to pick the winners and losers of energy industry.

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Pete Sepp is executive vice president of the National Taxpayers Union.

Leveraging the January 1st expiration of a three-decade-old federal "blender's tax credit" for ethanol, The New York Times editorial board called on Congress to "take a hatchet" to the oil and gas industry and expand federal programs aimed at bolstering wind, solar, and biofuel projects.

Yet, this is not the apples to apples—well, corn to corn—situation that the Times seems intent on leading readers to believe it is.

One purported "subsidy" for which the Times has repeatedly gunned is "Section 199," passed by Congress in 2004 to incentivize domestic job creation. This tax deduction, created to take the edge off the high rates and uncompetitive foreign-earnings rules of our corporate tax system, is available to everyone ranging from coffee roasters to video game developers.

[Read the U.S. News debate: Is a Flat Tax a Good Idea?]

The Times manages to muddy this point by referring to "unique" provisions to oil and gas and then pivoting to a $4 billion annual "cost" figure that includes "other subsidies." Yet, taking away Section 199 for certain oil and gas companies and leaving it in place for other industries comprises the single largest part of the Times's $4 billion revenue-raising agenda, one which President Obama happens to share.

But what about "unique" provisions the Times cites? The deduction for intangible drilling costs was put in place over 90 years ago to reflect the unsalvageable value for costs associated with drilling a well when no oil or natural gas product is developed. Percentage depletion allowances are rarely claimed by integrated firms and are more attractive to independent operators. Could such features of the law be jettisoned in an across-the-board tax simplification effort that includes lower rates and fair treatment for all businesses? Certainly—but the Times's discriminatory agenda would take the system in the opposite direction.

[See a collection of political cartoons on the economy.]

Using the word "subsidy" in connection with tax policy can be a slippery slope, since just about any part of the law allowing taxpayers to keep more of their own money can be described that way. In the case of the ethanol credit—whose "refundability" allows recipients to get more money back than they paid in taxes—the term seems fitting. Yet, even setting aside this controversy, the Times's analysis doesn't hold up well.

Using 2010 U.S. Energy Information Administration data, Motley Fool investment commentator Alex Planes recently found the "subsidy costs" per energy-equivalent barrel of oil consumed for the solar and wind industry are $63 and $32.59, respectively—compared to 28 cents for the oil and gas sector.

[Read Mort Zuckerman on America's energy future.]

If our leaders are genuinely interested in helping secure America's energy future, they should avoid picking winners and losers by reforming budget, tax, and regulatory policies so as to put all energy sources on an equal competitive footing. As a coalition of nearly 30 groups organized last year by the National Taxpayers Union noted in an open letter to Congress, "Centrally controlled energy policy has not worked, Washington does not know best, and the law of unintended consequences cannot be vitiated."

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