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Senate passes repeal of ethanol tax credit

Senate passes repeal of ethanol tax credit
Senate votes down ethanol tax credit. Would end 45-cent-per-gallon credit on July 1. Ethanol proponents lambast vote.

In recent weeks, Congress has continued to chop at agriculture funds like a manic lumberjack. On June 16, the Senate voted down a tax credit for ethanol, putting Republicans on record as being willing to raise taxes. If that was the Democrat’s strategy, mission accomplished; but such game playing is no consolation to the sizable contingent of Americans employed in the biofuels industry.

For more, see Ethanol, Congress and tax credits.

How did the series of ethanol votes unfold? About a month ago, Oklahoma Sen. Tom Coburn introduced an amendment to repeal the Volumetric Ethanol Excise Tax Credit (VEETC – also known as the blenders’ credit), a 45-cent-per-gallon tax incentive that goes to blenders and refiners when blending ethanol into gasoline.

“When the price of a barrel of oil is low, it serves as an incentive for them to go ahead and blend above and beyond the Renewable Fuel Standard,” said Jessica Bennett, National Corn Growers Association director of public policy, during a Friday interview with Delta Farm Press. “We see it as a pretty important piece of policy when it comes to the ethanol industry and our market access.”

Sen. Coburn wanted a repeal of the tax credit “as of July 1 – just take it away completely – to achieve some cost savings that go towards the federal deficit. He’s been a big opponent of ethanol for quite some time so it wasn’t a surprise he’d try to do that.”

Even with his fellow senators being surprised at the timing, “Coburn was able to get a vote on Tuesday (June 14). The Democratic leadership, on principal alone, decided to vote against it. That vote went down by a pretty significant margin: 40 to 59. It was close to a straight party-line vote.

“We were happy and pleased that (ethanol proponents) achieved that victory.”

But it wasn’t to last. Later Tuesday, “there was a compromise, or deal, reached where Sen. Dianne Feinstein, D-Calif., was promised a vote on the exact same amendment. We thought that vote would be held in the next couple of weeks. A few months ago, (Feinstein) was also a co-sponsor of a (similar ethanol) bill that Sen. Coburn had introduced.”

To clear the issue off the table, the Senate Majority leader, Nevada’s Harry Reid, scheduled a vote on Thursday (June 16). The Senate then voted 73-27 in favor of eliminating the VEETC.

Asked the reason for the Senate’s reversal, Bennett said “I think ethanol was a victim of circumstance. The Senate vote was more about politics than policy.

“I think the Democrats were backing the Republicans into a corner. They forced a vote on what they saw as ‘subsidies’ – although, we don’t view this as a subsidy. But that’s how it’s being billed in the press and in the talking points coming out of the Democratic side of the aisle.

The Democrats can now “tell Republicans ‘Look, you’ve voted for repealing subsidies for an industry. This is seen as a tax increase on an industry. Now, you’re on the record doing this. Let’s go after multiple industries. You said you were okay with this, so let’s go after the oil and gas industries.’

“The Democrats are using this as a political chip as Congress moves forward in the debate on the deficit and debt ceiling.

“Again, we were a victim of circumstance more than policy.”

House reaction

How might the House react?

“The underlying bill the amendment would be attached to isn’t expected to go anywhere. I doubt the House will take up this issue specifically.

“This year, the House hasn’t dealt with the VEETC yet so I don’t have a very good read on where they’re at. There are a lot of freshmen in the House.  

“However, Tea Party Republicans are strong in the House and have made it clear that raising taxes isn’t something they’re willing to do. Since Grover Norquist (of Americans for Tax Reform infamy) has made it clear, this is a tax increase – and some Republicans have said the same. We hope they’ll be opposed if it were to come to a vote in the House.”

As the Coburn/Feinstein amendment was debated, ethanol proponents found proposed legislation offered by Minnesota Sen. Amy Klobuchar and South Dakota Sen. John Thune much more palatable.

“We are in favor of the Klobuchar/Thune proposal,” said Bennett.  Backing the legislation “shows a willingness to reform on the part of the ethanol industry, which said ‘okay, if we’re going down this road, the ethanol industry is willing to accelerate the (reform) time line. We’re willing to go to a variable VEETC in order to give some cost-savings to the federal government.’”

The Klobuchar/Thune bill calls for a variable VEETC as soon as July 1.

“People should support what senators Klobuchar and Thune are doing to reform the ethanol tax incentive. The VEETC would only kick in when oil falls below $90 per barrel. Oil hasn’t been below $90 per barrel in several months. Right now, that would mean significant cost-savings for the federal government.

“The Klobuchar/Thune bill would provide about $1 billion in savings and dedicate about $1.5 billion to small producer tax credits, a cellulosic tax credit and go toward some infrastructure for the ethanol industry. It would also have some dedicated funds for the variable tax incentive.”

What it would mean if the House approves the Senate ethanol cut?

“The ethanol industry … is a significant economic driver in rural America. This could potentially be a devastating blow to rural America in these hard economic times.

“That’s something we hope we don’t have to face. Times are hard for everyone, right now. Ethanol plants are exception to the rule…

“It could mean lost jobs in rural America. And when jobs are lost, you lose revenue that is spent in small businesses in town. It has an impact on everyone.

“It certainly would have an impact on corn-growers. We provide corn to the ethanol plants and many of the growers are personally invested in those plants.”

What about the connection between ethanol and food prices?

“We’ve dispelled that … but it’s dredged up over and over. It’s just not the case.

“The price of food can be blamed on speculation. … Certainly, the price of oil has an impact on food prices more than anything.

“Sometimes people forget that the corn (grown for ethanol) isn’t corn grown for (human consumption). And on the back end, ethanol plants provide dry distillers grains – DDGs, a high-protein, high-quality feed – used to feed livestock.”

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