A bipartisan group of senators has renewed the effort to repeal tax credits for ethanol, introducing a bill Tuesday that would fully eliminate the Volumetric Ethanol Excise Tax Credit.
Senators Tom Coburn, R-Okla., and Dianne Feinstein, D-Calif., introduced the Ethanol Subsidy and Tariff Repeal Act, which would eliminate the VEETC and also fully repeal the import tariff on foreign ethanol. Cosponsors include Senators Ben Cardin, D-Md., Richard Burr, R-N.C., Jim Webb, D-Va., Susan Collins, R-Maine, and James Risch, R-Idaho.
“The ethanol subsidy and tariff is bad economic policy, bad energy policy and bad environmental policy,” Coburn said in a statement. “As our nation faces a crushing debt burden, rising gas prices and the prospect of serious inflation, continuing our parochial ethanol policy that increases the cost of energy and food is irresponsible. I’m pleased to introduce this common-sense bill with Senator Feinstein and will push for its consideration at the earliest opportunity.”
He noted that the bill has been filed as an amendment (#309) to the small business bill pending in the Senate.
Coburn and Cardin introduced a similar bill in March, but it was blocked by farm state senators (see Senators Introduce Bill to Eliminate Ethanol Tax Credit). The new bill also adds provisions for repeal of the tariff on imported ethanol.
“Ethanol is the only industry that benefits from a triple crown of government intervention: its use is mandated by law, it is protected by tariffs, and companies are paid by the federal government to use it,” said Feinstein. “Ethanol subsidies and tariffs sap our budget, they’re bad for the environment, and they increase our dependence on foreign oil. It’s time we end subsidies that we cannot afford and tariffs that increase gas prices.”
The VEETC is a de facto cash subsidy that directs 45 cents to refiners for every gallon of ethanol they blend with gasoline, according to the senators, and costs taxpayers approximately $6 billion a year. If the VEETC subsidy is repealed by July 1, 2011, as the Coburn/Feinstein bill calls for, it would save approximately $3 billion this year, they claimed. Nearly 40 organizations on the left and right, including the refiners who benefit from the VEETC subsidy, have called for the elimination of the subsidy.
The ethanol tariff comprises a 0.54 cent Most Favored Nation duty and a 2.5 percent ad valorem tax. The senators argue that the tariff makes U.S. more dependent on foreign oil by increasing the price of imported ethanol.
The Center for Agricultural and Rural Development at Iowa State University recently estimated that a one-year extension of the ethanol subsidy and tariff would lead to only 427 additional direct domestic jobs at a cost of almost $6 billion, or roughly $14 million of taxpayer money per job, the senators noted.
Separately, President Obama has been urging Congress to eliminate special tax breaks for major oil and gas companies in the past week. Senate Finance Committee Chairman Max Baucus, D-Mont., said he plans to draft legislation that would eliminate tax breaks like the Section 199 manufacturing credit for the largest oil companies, reduce the foreign tax credit for royalty payments to foreign governments, and impose an excise tax on certain Gulf oil leases (see Baucus Plans to Draft Legislation to End Oil Tax Subsidies).
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