Congressional Republicans face a test of their newly rediscovered principles. They can save taxpayers billions of dollars and spur the free market simply by allowing to expire at year’s end the subsidies for domestic ethanol production and tariffs on imported ethanol.
We soon will know whether the GOP, re-energized by the Tea Party, lives up to its own hype. The ethanol lobby for manufacturers of the blended fuel historically have been more closely aligned with Republicans than Democrats.
At midnight Dec. 31 a 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit and a 54-cent-per-gallon tariff on imported ethanol expire. All Congress needs to do to rid the country of these twin evils is nothing. But armies of lobbyists whose clients benefit from the taxpayer-subsidized and government-protected domestic corn ethanol industry are pressing for up to a five-year renewal of both special treatments.
“Congress should never have enacted a Soviet-style production quota for ethanol,” scolded a recent open letter to Congress from the Competitive Enterprise Institute, American Conservative Union, National Taxpayers Union and other free-market and taxpayer organizations.
The tax credit drains up to $6 billion a year from the general fund. The tariff protects domestic ethanol manufacturers from lower-priced Brazilian sugar cane ethanol competitors. Both result in inflated fuel prices, and a faux industry that otherwise couldn’t operate profitably.
The GOP has many opportunities to reverse years of bad policies established by the George W. Bush and Barack Obama administrations. But none will be a better measure of the party’s principles — or lack of them — than the opportunity to end tax subsidies for contrived commercial enterprises propped up with free-trade retarding tariffs.
The 2005 and 2007 energy bills mandated use of ethanol. Among unanticipated ill effects was a boom in corn production, which crowded out other crops, resulting in increased food prices, while diverting corn to fuel manufacturing. The repercussions reached the world market, with some even blaming ethanol for Mexican riots over the scarcity of tortillas.
Environmentalists recognized the harm of vastly larger corn crops that demanded more fertilizer production and use, adding to harmful runoff, which some blamed for “dead zones” in the Gulf of Mexico adversely affecting aquatic life. The expanded corn crop acreage also was blamed for soil erosion and endangered wildlife habitats.
Moreover, the Congressional Budget Office reported that ethanol tax credits wouldn’t boost ethanol consumption after all because the mandate effectively set demand. Cornell professor Harry de Gorter observed that tax credits effectively subsidized gasoline consumption. The CBO noted that the credits subsidized ethanol that oil companies would have bought anyway. The effect, as Washington Examiner columnist Timothy P. Carney reported, “boosts profit margins for oil companies, and subsidizes fuel consumption — thus subsidizing driving.”
It’s time Congress and conservative, free-market Republicans, in particular, let this “industry” die.