Senate Kills Ethanol Subsidies

While the world watched Weiner resign, the Senate was busy doing stuff that mattered a lot more, like voting 73-27 to kill nearly $6 billion a year in ethanol subsidies. An amendment offered by Sen. Tom Coburn (R-Okla.) failed on Tuesday, but rose miraculously from the grave two days later (take that, Jesus!) and passed today.

A mini-hullabaloo erupted within Republican ranks this week because the language eliminating the ethanol tax credit doesn't include a tax cut to offset the increased revenue, which means it technically violates the Americans for Tax Reform (ATR) pledge made by many senators not to hike taxes.

But now that the vote is a done deed, Americans for Tax Reform is offering the offending senators absolution for the sin of voting to kill the ethanol credit before the offset was in place. From an email sent out a few minutes ago:

As long as Taxpayer Protection Pledge signers that voted for the Feinstein/Coburn amendment also vote for the DeMint amendment [eliminating the Renewable Fuel Standard and the death tax], they will be in keeping with the Pledge they made to their constituents. Taken together, this elimination of favoritism toward ethanol is not a violation of the Taxpayer Protection Pledge.

How big of them.

No matter what happens with other cuts, the death of the ethanol subsidy is would be good news if the House follows the Senate's lead. 

UPDATE: Just got a follow up email from Americans for Tax Reform's John Kartch:

I saw your piece on the vote today and thought it worth pointing out the big picture here -- Coburn’s desire to cave to Democrats on a grand debt deal with Obama that raises taxes in a big way.

Kartch encloses a bunch of gotcha quotes from Coburn. (Coburn: “Everybody knows there is gonna have to be a compromise on some sort of revenue increase as we make the major cuts. That’s just fact.”) Fair enough. But if you're a fiscal conservative who thinks Coburn is the enemy, you're walking a very lonely road.

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  • Gilbert Martin||

    Let the squealing and wailing from all the ethanol rent seekers commence.

  • sarcasmic||

    Up goes the price of gas.

    Yay!

  • ||

    E-85 has, in my experience, not been significantly cheaper than E-10.

  • sarcasmic||

    I don't think I said that the price would rise significantly.

    Did I? Let me check.
    .
    .
    .
    .
    Nope.

    Ethanol is still going to be mandated as part of the gas.
    Without subsidies the ethanol presumably will cost more.
    Will that not be incorporated into the price per gallon, even if only a few cents?

  • ||

    This amounts to increasing taxes on fuel producers but is a small number in the grand scheme of things. The ethanol market has been severely distorted; reduction in demand for ethanol might help reduce prices of ethanol in the long run. Oil production will also become more efficient since fuel producers will no longer need to find ways to claim to be producing as much ethanol as possible, and can instead go with what makes economic sense.

  • sarcasmic||

    How will this reduce the demand for ethanol?

    By law gasoline must contain a certain percentage of the stuff.

    They're not repealing the mandates.

  • ||

    You're correct that the "must blend in X gallons per year" mandate will continue to drive excessive demand for ethanol.

    Removing a subsidy will still result in less market distortion.

  • Brian||

    I believe that the bill also lifts the tariff on imported ethanol so the price need not increase.

  • Brendan Perez||

    All gasoline, everywhere, or just gasoline in certain regions in the winter?

    I'm about 75% sure it's the latter and that ethanol is not required in all gas.

  • Brendan Perez||

    I was wrong. It doesn't have to be blended into all gas, but there are requirements that a certain % of gas sold has to have ethanol in it.

  • ||

    There's nothing else worthwhile to do with that much ethanol, and E-10 is cheaper by the gallon than straight gasoline.

    You can blend about 84 octane or so with 10% ethanol and end up with a substance that burns like 87 octane gasoline.

  • JT Florida||

    Ya, the next vote should be on a bill repealing the mandates.

    I wonder if a behind the scenes compromise occurred here. Did the ethanol interests say to themselves lets give ground on the tax breaks and subsidies, so long as they don't touch the mandates?

  • Dean Martins ghost||

    You mean all this time my cocktails could have been subsidized?

  • Matrix||

    maybe the price of food will go down since, hopefully, less corn will be used for ethanol.

  • sarcasmic||

    Why will less corn be used?
    Demand for ethanol is created by legislation that mandates its use.
    All this will do is cause the price of ethanol to rise, and the price of ethanol contaminated gasoline to rise with it.

  • Matrix||

    but do they mandate where a farmer sends his crop? If ethanol producers receive less subsidies for ethanol, they probably won't be able to pay as much to farmers for their produce, so they can sell it for food instead.

  • sarcasmic||

    "they probably won't be able to pay as much to farmers for their produce"

    They will if they raise what they charge for the ethanol that anyone who uses gasoline must by law purchase.

  • Matrix||

    Some places don't sell gasahol.

  • ||

    It's getting incredibly hard to find any places that are selling gasoline (not E-5, E-10, etc.)

    See http://www.e0pc.com/ for more information on this. It's a real pain for the aviation community that would like to run planes on mogas (basically ethanol-free 87 octane gasoline), but instead is forced to keep buying leaded avgas.

    It's also a pain for any of us who want to fire up an old chain saw but have to endure vapour locks thanks to the different properties of E-10 vs. real gasoline.

  • Scruffy Nerfherder||

    Ethanol sucks, period. I own an equipment rental firm and ethanol is a constant headache. I f'ing hate the stuff.

  • ||

    I think there is an additive you can purchase at home centers or hardware stores that lessens some of the problems with ethanol and power equipment. Can't remember the brand name.

  • Au H20||

    Yeah, Grover Norquist is kind of an ass, even if you support lower taxes.

  • Robert||

    What's assish about him?

    I can hardly believe I have to defend him both here and at The Conspiracy.

  • 4chan||

    WSJ notes that the House probably won't touch the legislation. Moving on.

  • Tman||

    Yeah, I don't see this getting through the house nor Obama signing off on it, so I'm holding off on any premature celebration.

    It's a start though, which is better than nothing. Any time I read "senate Kills X subsidy" I get a little stiffer in the pants.

  • ||

    I think the founders made a mistake when they made the house two-year term body.

    These days, it's perpetual campaigning and no congressman dares make a move that isn't essentially directed by some interest group in his district. The instant you do, it means a loss of funds for your ongoing, neverending, campaign.

  • Mike M.||

    Is Obama actually going to sign this bill? If he does, he can kiss Iowa goodbye (though that might well be the case anyway whether he signs it or not).

  • ||

    He can sign it and then brag about how he "took away $6 billion in tax credits for Big Oil".

  • robc||

    Interesting thought I had the other week...has the Dem Party considered "fracturing" and not running Obama as their candidate in every state?

    For example, take my state. KY often goes democrat (Clinton twice, Carter, Johnson, Kennedy) but McCain won by 16 pts in 2008. So there is no way Obama has a chance against ANY GoPer in 2012. However, if the GOP runs a moron (hi probability) a Dem could win it. But not Obama. While an alternative Dem winning electoral votes doesnt help Obama any (and if there was any chance of them casting stealth votes for Obama the candidate wouldnt win), but it could help prevent the GOP from getting a majority and throw things into the House/Senate and hope for the best.

    Anyway, some of the 19th century elections with 3 or 4 different Dem candidates made me think of that.

  • Jim||

    That's actually a really interesting idea. I'm from KY originally myself, and well remember Clinton winning there. Question is, would anyone vote for a candidate who they know is only a stealth candidate to try and get another guy in? Or are you talking about running a full-scale deception, and pretending to have an actual dissention in the dem ranks?

  • robc||

    pretending?

    Are you saying there isnt?

  • Jim||

    I don't know, I don't really hang out w/ any dems, and I rarely have a strong enough stomache to read their online publications. I assumed after that beautiful song those protesters sang for Obama a few weeks ago (where they said they'd vote for him even though they dislike him) that the Party was in lock-step on the candidate issue.

  • robc||

    I think "the Party" is. But that doesnt mean all the members of the party are. There would have to be some element of deception

    I think the key to making it work is to have candidate X instead of Obama on the ballot in close states that Obama won in 2008 that he has no chance at in 2012, like IN, NC and maybe FL (run a full southern strategy + Indiana).

  • Jim||

    Hmm, it is an interesting speculation.

  • hazeeran||

    What if O dumped Biden for a Bashear type? Still no go?

  • robc||

    Has Obama changed his skin tone yet?

  • robc||

    Thats a cheap shot at my fellow KYians, Obama did get 2% more than Kerry did.

  • robc||

    And only 0.22% less than Gore.

  • The Gobbler||

    Your from KY, robc? Based on my travels around America, I consider them to be the friendliest, most helpful people in the country.

  • hazeeran||

    The Smokies are beautiful.

  • robc||

    Born in Louisville, currently live in Louisville, despite the best efforts of mine 23 to 17 years ago.

    Really, I wouldnt want to be anywhere else now.

  • mad libertarian guy||

    Louisville's a dump that tries to ignore that it's no more than a decent sized city in a backwater state.

    Most of those from there, in my experience, try very hard to act as if they are not from KY because being such is an embarrassment to their supposed civility and sophistication.

  • ||

    The flaw, I think, is that it would likely diminish voter turnout for the Democrats, while simultaneously inspiring the GOP to turn out to defeat the "dirty tricks."

  • Mo||

    Considering Gore didn't win in an election where he won the popular vote and Kerry didn't win it in tight election, why do you think KY would go D?

  • robc||

    Bush, Bush, Clinton, Clinton, Bush, Reagan, Reagan, Carter, Nixon, Nixon, Johnson, Kennedy. KY almost always goes with the winner, Obama was a very weird exception.

  • ||

    Does anyone seriously think Obama isn't going to win his party's nomination?

    I don't.

    A) Nobody is challanging him
    B) He has strong support from the democratic base (Blacks, liberal democrats, and progressives)
    C) Winning a primary is all about playing to the base.

    Obama doesn't need to do shit to get renominated. His fans refuse to see his failings, and his fans comprise the majority voting block of the Democratic party.

    There is no way in hell he isn't going to be the nominee.

  • ||

    Hell hath frozen over

  • robc||

    “Again, you have heard that it was said to the people long ago, ‘Do not break your oath, but keep the oaths you have made to the Lord.’ But I tell you, Do not swear at all: either by heaven, for it is God’s throne; or by the earth, for it is his footstool; or by Jerusalem, for it is the city of the Great King. And do not swear by your head, for you cannot make even one hair white or black. Simply let your ‘Yes’ be ‘Yes,’ and your ‘No,’ ‘No’; anything beyond this comes from the evil one. -- Matthew 5:33-37 (NIV)

    Seems a lot easier than having to parse whether or not elimating a tax credit is a tax increase.

  • MNG||

    I dedicate this analysis to John Thacker.

    Of the 27 nays there were 13 Dems and 14 GOPers. Percentage wise that is 24.5% of the Dems and 34% of the GOPers.

    http://www.senate.gov/legislat.....vote=00090

  • ||

    MNG,

    It's no secret that Republicans love big agribusiness welfare. The ethanol debacle has been a product of bipartisan consensus.

  • MNG||

    It's a regional thing, look at where those nays come from (but what's up with Franken, does MN grow a lot of corn or is it just another New Deal style program he loves?).

  • Joe M||

    Haha, what? Minnesota, you know, the state directly north of Iowa.

  • MNG||

    I only know Minnesota from watching Vikings games and the movie Fargo, I assumed it was a vast, frozen wasteland like N. Dakota.

  • ||

    The flat ground is good for tractor pulls.

  • ||

    Not quite. It's unfrozen for a couple of months, and it's not as windy as North Dakota. It also has a really big mall.

  • ||

    Minnesota is probably the single biggest backer of ethanol nonsense amongst all the states. They are trying to force a move to E-20 despite grave reservations from the EPA and auto manufacturers.

    It's no surprise that Franken kowtows to the local establishment, which includes "force ethanol on the rest of the country so we can get rich". Minnesota's ethanol comes from a variety of sources, including corn.

    It's going to be interesting to see how Michelle Bachmann plays the ethanol card.

  • Robert||

    It's not just Republicans. Historically and in many countries, the liberal party has wound up in thrall of agriculture interests. Log rolling. It's in the interest of farmers to support liberals, so it's in the interest of liberals to support farmers, even on matters that are against liberalism.

  • The Gobbler||

    "I dedicate this analysis to John Thacker.

    Of the 27 nays there were 13 Dems and 14 GOPers. Percentage wise that is 24.5% of the Dems and 34% of the GOPers."

    Still an asshole today, I see.

  • MNGer||

    Does a retard change its diaper?

  • tote-road||

    corny, but good

  • robc||

    The U.S. ethanol industry is protected by a tariff of 54 cents a gallon on imported ethanol and that, too, would end under the Senate measure.

    Woo hoo!!!

    Imported Brazilian sugar ethanol!!!

  • MNG||

    Does this have any effect on the subsidies which supposedly make HFCS so plentiful?

  • Joe M||

    Good question. The other half of that is the tariffs on sugar cane imports, I believe.

  • ||

    .. and the third half of this are the sugar quotas which make sugar too expensive, the import tax on imported ethanol, and the subsidies given for growing corn regardless of it ends up as fuel, sweetener, or a delicious entreé for a summer picnic.

  • FlyoverCountry||

    The corn which is enjoyed on the cob at your summer BBQs is very very different from the corn which is grown for ethanol and HFCS etc - that stuff is 'sweet corn' the other stuff is commonly known as ear corn, and it tastes like shit right off the cob

  • squishua||

    It ties up farmland, machinery, and labor to produce garbage corn that's only good for burning or fermenting.

    I don't see how this makes it better.

  • 4chan||

    I wouldn't be suprirsed if removing the barriers (both the subsidies and the tariffs), more ethanol will eventually be used.

    Also, what ever happened to Switchgrass Ethanol?

  • Spoonman.||

    Switchgrass ethanol is just really damn hard to make. Lignin is tough shit.

  • Brett L||

    We're still working on it. They've almost got the whole process down to a one container reaction. This is really nice because you only have to do one separation at the end. Still not profitable, yet. Won't ever be easier than corn/sugar to ethanol because it requires extra steps to get the cellulose stripped from the proteins and break the cellulose down into sugars.

  • hazeeran||

    I guess this means fewer third worlders will be starving, correct? This will direct more corn into the food business, making it less scarce, driving down the price.

  • ||

    It's hard to predict what the result of removing a subsidy will be; they are notorious for unintended consequences.

    The immediate result will be less market distortion and less deficit spending on a subsidy generally agreed to be a bad idea in the first place.

    The market value of corn as a fuel may continue to be in excess of what third world nations are able to afford for food. My advice to them would be to start growing their own food and/or grow fuel cash crops. Doesn't the third world export a lot of oil, too?

  • hazeeran||

    The immediate results are more than worth it. As for the medium-long term effects it's hard to say because it's linked also with transportation, and therefore gasoline costs, which in turn depends on the dollar, therefore the Fed.

  • Third World||

    You mean cash crops like marijuana , poppies and coca? Those don't need subsidies!

  • MNG||

    It looks like we will have to fuel our economy with just good ol'fashioned gumption and know-how.

  • Jim||

    There's enough hair product on corpses from the 1880s - 1960s that if we dig them all up and wring it all out of them, we can use the oil to power us for another decade, at least.

    Pomade-powered cars FTW!

  • ||

    May I interest you in some Brylcreem stock?

    I prefer Groom N' Clean myself.

  • Jim||

    That stuff has got to be combustible. It's only a matter of figuring out how to harness it.

  • Ska||

    I don't want Fop, I'm a Dapper Dan man, god dammit.

  • jasno||

    Argon already tried that in the late 70's:

    http://www.youtube.com/watch?v=l6ZAktYiumc

  • sarcasmic||

    Repeal the mandates and the subsidies become moot.

  • ||

    Tequila is saved! What a relief!

  • ||

    Cheap corn! Alright!! I can't believe the U.S. Senate actually did something I agree with.

  • ||

    They're not ending corn subsidies or crop tariffs.

  • ||

    If anything, government subsidies for corn production probably mean corn prices are too cheap right now.

  • ola||

    quote Ron Bailey, "these subsidies are actually telling us that they are not such a good idea, that we should be devoting our resources to finding other alternative sources of fuel........"

    They may be telling you that, but what they might be saying is "you've already found your fuel, it's called oil and it comes out of the ground".

  • The Gobbler||

    ^^THIS^^

  • ||

    This benefits petroleum companies more than it does us. Don't get me wrong--it is the right result. But only ending this one subsidy to help out the oil lobby is still politics as usual for the GOP, not any indication of a free market movement or statist collapse.

    I'm genuinely happy with the outcome, but they would need to do this at least ten more times* in various areas to really impress me. I'm just not ready to high-five any politicians quite yet, least of all McCain, who is one of the primary sponsors of this ethanol legislation.

    * Or just one that really pissed off their biggest donors.

  • ||

    How is removing a $6 billion tax credit for the fuel production industry "helping the oil lobby"?

    The mandates to blend ethanol into gasoline have not been removed, although I suspect the oil industry secretly likes those since they can mix ethanol with low-octane fuel to make a higher-octane E-10.

  • ||

    Yes, you're right, it's a mixed bag, but it's not a clear win "Congress finally woke up" dance-in-the-streets Hallelujah kind of event.

    If we believe that all these politicians just suddenly became moral/ethical/free-marketeers and that this didn't benefit these politicians and their lobbies/donors, then how do we explain all their other votes? So many assumptions to make that work, Occam's Razor would snap in half.

  • Zuo||

    Yep its the mandates that really matter. Repeal THAT.

  • ||

    this would have been a good story if you could have RESTRAINED yourself from mocking Jesus...not smart either...god says "I WILL NOT BE MOCKED"

  • Brett L||

    What does he say about mocking you?

  • jasno||

    And ye, behold, the lord thy god hath spoken: those who mock my only begotten son shall suffer the 8th plauge of the apocalypse - a plauge of trolls.

  • sevo||

    ".god says "I WILL NOT BE MOCKED"
    Can't mock something that ain't there. Sure can mock those who fantasize about it.

  • Jim||

    god says "I WILL NOT BE MOCKED"

    Ignoring the fact that you spelled "god" with lowercase, indicating you don't think he/she/it is a proper noun, if god said that, and yet he was mocked, and continues to be in these very comments, then what does that say about his power to get what he wants?

  • Kevin||

    "Take that, Jesus!"

    Hahaha. KMW, you are the wittiest Reasonoid.

  • ||

    rose miraculously from the grave two days later (take that, Jesus!) and passed today.

    First Off: rising from the grave works just like (miraculously-multiplied) wine. It takes time. Not too much, or you end up with decrepit zombies, but not too little either. Faster is not necessarily better when it comes to resurrection.

    Second Off: Jesus didn't "pass" right after his resurrection either, he got to do some stuff, which seems better to me than passing right after you get resurrected (what's the fucking point then).

    Conclusions:
    Jesus Still Winning.
    US Legislation making a small move in the direction of Winning.

    Take THAT U.S. Congress.

  • ||

    Oh, and, WOOHOO. It's almost like the senate is representing the people who voted for them, instead of the people who financed their seat....almost.

    I'm still expecting the incredibly-terrible followup tomorrow about how gasoline has been banned and everyone will just have to make due until GM can produce enough Volts for everyone.

  • ||

    Ask and ye shall receive. Almost. They still have mandates for the inclusion of ethanol in gas. So they are enforcing demand, just not handing out actual cash to go with it. The ethanol fatcats will still make the same piles of cash. We'll just fund it via the price of gas, rather than via deficit funding of tax credits.

    So yeah, you were right. It is almost like the senate is representing the people. Almost, but not quite.

  • ||

    The ethanol fatcats will still make the same piles of cash. We'll just fund it via the price of gas, rather than via deficit funding of tax credits.


    In 2009 we used about 138 billion gallons of gasoline. Passing the 6 billion to price at the pump translates into an increase of a little over 4 cents per gallon. It’s not going create a torch and pitch fork moment but there will surely be some grumbling from the common folk.

  • CORN POWER waterski team||

    Damn it. Time to find a new sponsor.

  • jtuf||

    Thanks goodness. I look forward to seeing global food prices decline a bit this summer. Hungry people in developing countries will benefit the most from this.

  • Geoffrey Allan Plauche||

    Um...tax credits are not subsidies.

    Apparently, Republicans can't even get tax cuts right as they cut tax breaks on ethanol. Simply because it's a leftist-environmentalist cause?

    I'm all for ending any real subsidies on ethanol, but I'm not in favor ending tax breaks on anything. Taxation is theft.

  • Dick Clark||

    GAP: Heroic! Down with taxes, and down with "libertarians" cheering for tax hikes such as this.

  • ||

    In general, tax credits are an insidious beast because the government effectively relieves you from paying something that everyone else has to pay in exchange for you doing what the government considers a virtuous deed.

    Refundable tax credits are indistinguishable from subsidies or direct payments. One of the "domestic fuel production" tax credits was refundable, which led to paper mills being paid billions of dollars (in excess of their would-be tax liability) to produce sticky black goo that they then burned as part of their normal industrial processes.

    A better solution would be to simply eliminate income taxes, especially on corporations.

  • Geoffrey Allan Plauche||

    "In general, tax credits are an insidious beast because the government effectively relieves you from paying something that everyone else has to pay"

    Sure, it's not fair that others are still getting robbed more than you. But it's not your fault (unless you lobbied or voted against tax breaks for others); it's the state's. However, the solution isn't to end your tax breaks in order to increase your victimization to their level. The solution is to cut their taxes as well.

    "in exchange for you doing what the government considers a virtuous deed."

    Yes, I'm not fond of the social engineering aspect of it either, but I don't think it's a good argument to hike taxes on someone by ending their tax breaks. That'd be like saying, "Hey, we're going to violate your rights more than we have been because we don't like the government letting you keep more of your own money in order to give you a financial incentive to do 'be virtuous' or support some foolish, counterproductive environmental solution (like ethanol)."

    "Refundable tax credits are indistinguishable from subsidies or direct payments."

    What? I disagree. Tax credits decrease the amount of legal plunder the state demands from you. Subsidies, direct payments, give you a piece of the tax revenue pie pilfered from someone else's wallet.

    "One of the "domestic fuel production" tax credits was refundable, which led to paper mills being paid billions of dollars (in excess of their would-be tax liability) to produce sticky black goo that they then burned as part of their normal industrial processes."

    I don't know about this. Do you have a cite for it? It's not really a tax credit if you're getting money in excess of what the state otherwise would have demanded from you in taxes. Any excess would truly be a subsidy. But you can't say anything short of that is indistinguishable from a subsidy.

    "A better solution would be to simply eliminate income taxes, especially on corporations."

    I agree, but I'll take any tax cut I can get when I can get it.

    Don't you find it odd, though, that just about everyone in this comment thread seems to be cheering the end of tax breaks and buying the liberal sophistry that a tax cut is a subsidy?

  • Amakudari||

  • Colonel_Angus||

    "the language eliminating the ethanol tax credit doesn't include a tax cut to offset the increased revenue"

    I feel so outraged and violated by this.

  • ||

    The mandate to use ethanol still remains. The ethanol disaster will continue until the mandate is removed.

  • ||

    No tax break for ethanol producers? Oh those poor agri-mega corps! I feel so bad for the likes of ADM and Cargill et al.

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