Ethanol Subsidies Are a Test for Congress, Obama Administration

Both liberal and conservative representatives call for the expiration of ethanol subsidies.

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It's hard not to have an opinion on ethanol, especially in Congress. Basically you're either for it or you're against it—as least as far as the way it is treated as a matter of public policy is concerned. As an industry, ethanol is heavily subsidized, its use in the U.S. fuel supply is mandated and millions if not tens or hundreds of millions in taxpayer dollars are spent each year trying to find ways to produce it more cheaply and from something other than feeds stocks like corn.

The ethanol program does have its fans, particularly among environmentalists who see it as a way to reduce carbon emissions from the U.S. vehicle fleet and among those who argue it's a good way to help lessen our dependence on imported oil. But it also has its critics in an out of government. To them, the entire U.S. approach to ethanol is nothing more than a giant boondoggle that has not delivered as promised and which shows little sign of doing so in the future. And, once again, the critics are circling in for the kill.

[ Read Susan Milligan: Pawlenty's Tough Ethanol Talk Could be Good for Primary Process.]

Earlier this month more than 70 members of Congress wrote to House Speaker John Boehner and Minority Leader Nancy Pelosi urging them to "allow ethanol subsidies set to expire to do just that and to resist calls to expand or create new ethanol subsidies in the eleventh hour."

The letter is bipartisan in nature, including as signatories Utah's Rep. Jason Chaffetz, one of the most conservative members of Congress and California's Rep. Pete Stark, one of the most liberal. Despite the ideological divide, however, they all agree that the ethanol program as currently conceived is not working in the country's best interests and that the money that is being spent on it could be better spent elsewhere, either on other programs or to pare down the level of deficit spending that has pushed the national debt equal to one year's U.S. gross domestic product.

[ See a collection of political cartoons on the budget and deficit.]

"The ethanol industry," the letter says, "has benefited from a tax credit incentivizing production, an import tariff shielding it from competition, and a renewable fuels mandate creating demand."

Both the volumetric ethanol excise tax credit and the prohibitive import tariff are set to expire at the end of this year. These benefits were not permanent in nature for a reason. Congress anticipated the ethanol industry one day being sufficiently mature to stand on its own. It is difficult to make the argument that this day has not arrived. With widespread concern across a spectrum of issues including anti-hunger, fiscal, environmental, agricultural, good governance, and others, extending a billion dollar ethanol tax credit would appear out of the question and the prohibitive import tariff should be allowed to expire as well.

It's a solid argument, but one that many members of Congress are likely to find unpersuasive. The pro-ethanol lobby is one of the most powerful in the nation's capital and, with a government shutdown looming and a series of continuing resolutions and a "minibus" appropriations bill on the horizon, it's hard to see how they will not be able to slip something into some legislative vehicle that will keep the current ethanol policy in place, at least for the short term. Nevertheless bringing up the issue of the ethanol subsides and protective tariffs are a good test of how serious Congress, and the Obama White House, for that matter, are about cutting spending and letting market forces rule the day.