Ethanol’s wasteful tax credit

It isn’t too often that Sen. Dianne Feinstein, a pro-environment Democrat from California, and Sen. Tom Coburn, a “drill, baby, drill” Republican from Oklahoma, agree on energy issues. Yet when it comes to the ethanol tax credit, an egregious form of corporate welfare that unites liberals and conservatives in opposition nationwide, they are of one mind. That’s why it was disheartening Tuesday when an attempt to end the subsidy and save taxpayers nearly $6 billion a year went down in flames in the Senate.

Opinions vary about whether corn-based ethanol is a worthwhile alternative fuel. Backers, including President Obama, say it reduces reliance on foreign oil and cuts greenhouse gas emissions. Yet it has a host of negative consequences. The U.S. diverts about 38% of its corn crop to make biofuels, raising food prices around the world and encouraging overuse of environmentally destructive fertilizers. Cellulosic ethanol, made from plant waste or non-food plants such as switchgrass, is a far better alternative, but the technology to produce it inexpensively isn’t ready.

There’s less disagreement about ethanol subsidies. Refiners get a 45-cent tax credit for every gallon of ethanol they blend into gasoline. Eliminating this credit, which goes to oil companies rather than farmers, wouldn’t hurt the ethanol industry because a federal mandate that requires an ever-increasing amount of biofuels to be blended with gasoline would remain in place. Groups that almost never see eye to eye, such as the Sierra Club and Koch Industries, are against the tax credit. Urban-state liberals such as Feinstein and such conservatives as Sen. Jim DeMint (R-S.C.) and GOP presidential candidates Tim Pawlenty and Jon Huntsman all oppose it.

Nonetheless, when an amendment to end the tax credit hit the Senate floor, it lost by a vote of 40 to 59. In part that’s because of mindless opposition from Democrats who objected to the unconventional procedure used by Coburn to bring the measure to a vote. And in part it’s because Grover Norquist, whose Americans for Tax Reform holds GOP lawmakers to a strict pledge against tax hikes, urged Senate Republicans to reject the amendment under the rationale that ending a corporate tax credit without passing a matching tax cut would be akin to raising taxes. That’s a rotten argument. When the government gives tax breaks to special interests, it usually makes up for the lost revenue with higher taxes for everybody else. Eliminating the ethanol subsidy would have reduced the federal deficit, which we thought was a GOP priority.

The lesson: Devotion to rigid party orthodoxy trumps common sense even on those rare occasions when Democrats and Republicans widely agree. That’s grim news for anybody hoping for problem-solving by Congress.