Cutting spending in Congress is so difficult because every area of the budget is defended by an army of special interests and perverse alliances that often defy reason and common sense. Nowhere is this more evident than with the federal government’s ludicrous $6 billion subsidy of ethanol, which I and Sen. Ben Cardin, D-MD, have proposed to eliminate.
A recent post in The Examiner illustrated why the ethanol subsidy endures despite widespread opposition from the Left and the Right. On one hand, your writer declares, “government support for ethanol is among the most destructive and wasteful giveaways to special interests today.”
Yet, on the other hand, he says doing away with the subsidy is a “tax-hike” that would leave money in appropriators’ pockets, at which point many Republicans run for the hills.
This analysis is inaccurate and destructive on several levels.
First, the ethanol subsidy is a spending program, not a tax relief measure. If it were solely in the discretionary budget and controlled by the appropriators it would be unmasked as a rank cash payment. Instead, Congress has shifted the spending program to the tax code to protect it from being cut.
Two, this cash payment is nothing more than corporate welfare not-so-cleverly disguised as a tax break that, in the real world, has the impact of a tax increase.
As Pete Sepp with the National Taxpayers Union says, “the refundable VEETC is a prime example of tax policy at its worst. Congress needs to focus on simplifying the tax law and cutting rates for everyone, rather than manipulating the tax law and distorting our economy.”
Another damning assessment comes from Matt Kibbe, president of Freedomworks: “[P]olicymakers in Washington have opted for a fuel that can only exist in a world of subsidies and distortions. The energy sector is a prime example of Washington’s inability to second guess the marketplace; it is a confusing world of myriad and simultaneous subsidies, taxes, spending programs, monopolies, trade barriers and regulations. Current ethanol policy is bad for the economy and for the environment, and seems driven more by corporate interests rather than any concern for the nation’s energy supply.”
Ethanol distorts and manipulates the economy by increasing the price of food and energy. While I’m pleased groups like Americans for Tax Reform, who previously opposed the elimination of the subsidy are now neutral, their neutrality is supporting a de facto tax increase on every American consumer.
For instance, the Congressional Budget Office has said the “cost to taxpayers of displacing a gallon of gasoline with a quantity of ethanol that provides the same amount of energy as a gallon of gasoline is $1.78.” How’s that for efficiency?
Regarding food prices, CBO said, “The increased use of ethanol accounted for about 10 percent to 15 percent of the rise in food prices between April 2007 and April 2008. In turn, that increase will boost federal spending for the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program) and child nutrition programs by an estimated $600 million to $900 million in FY 2009.”
The subsidy also exacerbates hunger internationally, which we pay for with increased food aid and defense spending – both of which are financed with taxes and borrowing.
Emira Woods with Africa Action calls it a “shameless subsidy.” She writes, “In the midst of a global food crisis and rising hunger, the ethanol industry expropriates land in Africa and elsewhere to grow food that fuels cars.”
Finally, the ethanol subsidy is a tax on anyone who owns a car. In short, the subsidy makes it more expensive to drive to the grocery store to buy more expensive food. Ethanol is a third less efficient than gasoline – it burns at 68 percent of the energy content of regular fuel. And, by EPA’s own admission, ethanol reduces fuel economy, ultimately leading to the burning of more fuel to travel the same distance.
If that isn’t bad enough, the ethanol subsidy may damage your engine. AAA, the nation’s biggest motoring organization, has said higher ethanol blends may damage exhaust systems, engines and fuel pumps, and destroy catalytic converters.
In a perfect world, the hundreds of earmarks and programs I have targeted for elimination in my years in Congress would be immediately rolled into lower tax rates for American citizens. The next best option is to simply cut stupid spending in whatever form it exists. Using the tax code to pick winners and losers in the market should be anathema to conservatives. Eliminating this shameless expenditure should be a no-brainer, especially on this side of the Iowa caucuses.
Sen. Tom Coburn is a Republican from Oklahoma.