Normally, I generally agree with Grover Norquist’s calls to reduce the size of America’s bloated government. However, this recent article in The Economist made me furious.
Mr. Norquist, founder of Americans for Tax Reform (ATR), an organization whose raison d’etre is to reduce the size and complexity of goverrnment, is against ending the ethanol tax credit.
The tax credit Norquist opposes cutting is the same tax credit that supports a commodity that takes almost as much energy to produce as it provides in fuel. Ethanol also consumes a vast amount of the country’s corn production, which raises prices on food globally. As the world has seen in the Middle East, rising food prices have consequences.
Yet, Mr. Norquist thinks it is fine to spend $6 billion a year on ethanol subsidies. Hell, even Al Gore is against ethanol subsidies. Surely, that has to account for something.
I understand Mr. Norquist’s concern that the net effect of eliminating the tax credit will be a $6 billion increase in government revenue. He believes that the government should offset this credit with $6 billion in tax relief elsewere. This would make ending the subsidy revenue neutral.
While I agree that finding a way to make ending the subsidy revenue neutral is better, I do not believe it is a good argument for keeping that particular subsidy outright.
Let’s face it, the ethanol subsidy is the Boss Hogg of pork and America needs to end it.
Doesn’t it have to do with Monsanto’s influence as well?
Those guys might as well be the government. Amazing the influence they have, and what they get away with not only here, but in other countries as well (likely more in other countries, actually).
The VEETC does nothing to support the ethanol industry. It is a tax credit taken by gasoline producers that reduces the amount of the federal gas tax, that is collected by the gasoline retailer, that is then submitted to the government. It amounts to a 4.5 cent / gallon of E10 subsidy to big oil. It was ostensibly to be an incentive to gasoline producers to blend more ethanol into gasoline before the federal government passed the law in 2007 that now requires them to blend ever increasing amounts of ethanol into gasoline through 2022. Because of that law the gasoline distributors were forced to add expensive infrastructure at their terminals to receive and store ethanol and mix it into the finished gasoline product. They have no choice, so you could view the VEETC as a funded mandate for the distributors to build out their infrastructure.
Thanks, stopethanol, for following my blog.
While I agree that ethanol producers do not directly benefit from the VEETC, they indirectly benefit from the artificial demand that incentives and mandates like the VEETC and the RFS create. Additionally, I believe the $6 billion figure also includes other incentives for small ethanol producers like financing credits, etc.
Either way, the $6 billion should be on the chopping block. Before Obama raises taxes on the wealthy, he should get rid of this wasteful tax credit first.
The truth is that petroleum consumers in the US are massively subsidized by the government through misstructured taxes. Ethanol subsidy does not subsidize ethanol as much as it attempts to outsubsidize an implicit subsidy the same government pays to gasoline consumers