The Senate vote Tuesday on repealing the Volumetric Ethanol Excise Tax Credit failed, but it could be a sign of things to come as the tax reform debate heats up in the midst of talks to raise the debt limit.
Sen. Tom Coburn, R-Okla., has been pushing to repeal the tax credit for blending ethanol with gasoline, also known as the “Blender's Credit,” arguing that it costs an estimated $6 billion a year. He used an unusual procedural move in the Senate to force a vote on an amendment co-sponsored by Sen. Dianne Feinstein, D-Calif., to repeal the 45 cents a gallon tax credit, along with a tariff on imported ethanol of 54 cents a gallon. Coburn has tried in the past to repeal the tax credit, but has battled farm state senators, led by Sen. Chuck Grassley, R-Iowa, as well as Grover Norquist, the president of the influential conservative group, Americans for Tax Reform (see Senators Introduce Bill to Repeal Ethanol Tax Credit).
Norquist’s group consistently opposes any tax increases and has managed to convince most Republican lawmakers in Congress to sign a pledge to vote against any tax increases without corresponding tax cuts. Nevertheless, 34 of the 47 Republicans in the Senate voted in favor of Coburn’s amendment. They included Senate Minority Leader Mitch McConnell, R-Ken. The amendment fell short of the 60 votes needed to proceed in the Senate, according to the Washington Post, but it could be a sign that some Republican lawmakers are ready to allow tax increases, at least in some cases.
On the other hand, there are plenty of caveats. Many of the Republicans who voted for Coburn’s amendment also supported an amendment by Sen. Jim DeMint, R-S.C., which would have eliminated the estate tax and more than compensated for the elimination of the ethanol tax credit. Norquist claimed after the vote that he had told senators they could vote for the Coburn amendment as long as they also voted for the DeMint amendment to avoid breaking their pledge not to raise taxes.
Coburn has vowed to try again to repeal the ethanol tax credit, claiming that even the big oil companies say they don’t need it. Whatever the outcome, the ethanol tax credit is scheduled to expire at the end of the year anyway.
But the vote Tuesday does indicate there could be some wiggle room for Republican lawmakers in the ongoing talks over the debt limit and the budget deficit. Those talks resumed Tuesday, led by Vice President Joe Biden. He had been negotiating with the so-called Gang of Six, a bipartisan group of lawmakers, until Coburn walked out of the talks last month, saying they had reached an impasse.
However, the talks seem to be on again, and Biden hopes to produce a deal by July 1, according to the Post. That would give the government just enough time to raise the debt limit from $14.3 trillion to $16.7 trillion. Otherwise, Treasury Secretary Tim Geithner has warned that the federal government risks a default by August 2.
The deal is likely to include spending cuts and possibly tax increases as well, together amounting to roughly $2 trillion. Republicans have reportedly been pushing for deeper spending cuts, along with reforms in entitlement programs like Medicare. Democrats, meanwhile, have called for a combination of spending cuts and tax increases. They are resisting efforts to privatize Medicare along the lines of the plan outlined by House Budget Committee Chairman Paul Ryan, R-Wis. The Ryan plan, which would slash the top tax rate to 25 percent, is likely to be a major issue in the 2012 election campaign, and has already become a kind of litmus test for both Democrats and Republicans.
To enforce the budget deal, Republicans want triggers in place that would automatically cut spending if spending caps are reached, while Democrats want automatic triggers for tax increases. Republicans have said that tax changes should occur in a broader tax reform bill, not in the debt limit talks. The two sides obviously have a lot of issues to sort through, but there is at least some sign of flexibility on taxes.
The looming threat of a default on the federal government’s debt, and the effect that would have on the bond market and interest rates, is giving lawmakers extra impetus to come up with some kind of compromise. If they manage to do that, they will still need to sell it to enough of their colleagues in Congress to get it passed.
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