FROM THE SAN FRANCISCO CHRONICLE -- SFGate.com
(05-07) 04:00 PDT Washington -- Democratic Sen. Dianne Feinstein of California and Oklahoma Republican Sen. Tom Coburn have joined forces with Tea Party activists in an attempt to kill $6 billion a year in ethanol subsidies, taking on the corn lobby and anti-tax crusader Grover Norquist.
Ethanol, an alcohol fuel made from corn and used as a gasoline additive, for decades has received lavish federal subsidies in the form of tax breaks, import tariffs and regulations that set a goal of gasoline to contain up to 10 percent ethanol. The Environmental Protection Agency this year approved blends of up to 15 percent ethanol for cars made in 2001 and later.
The fuel has been alternately touted by corn growers as a salvation from U.S. dependence on foreign oil and blamed by environmentalists for contributing to giant algae blooms in the Gulf of Mexico and by anti-poverty groups for raising food prices.
With the $14.3 trillion national debt ceiling approaching, ethanol has become a flash point in GOP maneuvering over taxes.
The government pays refiners 45 cents a gallon through a tax credit to refine ethanol. An additional 54-cents-per-gallon tariff blocks imports of less-expensive and more energy-efficient sugar-based ethanol from Brazil.
Feinstein and Coburn are sponsoring an amendment to eliminate the subsidies and promise to attach it to a bill next week that would reduce oil and gas subsidies. Feinstein said the subsidies are no longer affordable and that the tariffs actually increase gasoline prices because it's cheaper to import oil than to import ethanol.
"Ethanol is the only industry that benefits from a triple crown of government intervention," Feinstein said. "Its use is mandated by law, it is protected by tariffs, and companies are paid by the federal government to use it."
Ugly public spat
The ethanol fight has drawn Coburn into an ugly public spat with Norquist, the president of Americans for Tax Reform and a heavyweight in GOP circles. Norquist accused Coburn of breaking his pledge not to raise taxes, on the grounds that ending the ethanol tax break would constitute a tax increase for corn growers.
The stakes are much higher than just ethanol. With the federal budget a few months short of hitting the debt limit, depending on how the Treasury manages debt payments, Norquist is pressuring Republicans to refuse any agreement with the Obama administration to raise anything that looks like a tax.
The ethanol tax credit is a classic "tax expenditure," or spending program disguised as a tax cut. Such tax breaks together cost more than $1 trillion a year. There is wide agreement among budget analysts, including the president's bipartisan deficit commission, that reducing such tax breaks could reduce the deficit and increase the fairness of the tax code.
If Republicans rule such tax breaks out of bounds, there is scant chance of any pact between the parties on the budget.
Coburn fought back hard against Norquist, saying the ethanol subsidy 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" because other taxes have to be raised to pay for it.
Other taxes expected
Ryan Ellis, the tax policy director for Norquist's group, volleyed back, issuing a paper saying that Americans for Tax Reform "opposes the ethanol tax credit and always has" but insisted that other taxes would have to be reduced by the same amount as the ethanol tax break to prevent a net tax increase if it is eliminated.
In an interview, Ellis appeared to back down, saying that by eliminating the ethanol tariff, the Feinstein and Coburn amendment might not raises taxes as much, because tariffs are taxes.
Feinstein and Coburn appear to be winning the debate among conservatives, drawing support from the Wall Street Journal editorial page, the Economist magazine, conservative commentator Chuck Colson, and RedState.org and FreedomWorks.
On Tuesday, the Tea Party Patriots group, which opposes taxes and excessive government spending, said on its Facebook page: "When the Left and the Right agree ... amazing things can happen."
One commenter on the group's website posted, "Why should we as taxpayers pay to make our road fuel more corrosive and less energy dense. And making fuel out of food is retarded even for politicians!!!"
Farm state Sens. Charles Grassley, R-Iowa, and Kent Conrad, D-N.D., began a rearguard action, introducing a bill that would extend the ethanol tax credit through 2016, but at declining levels.
Bloc battles subsidies
A broad coalition of 90 organizations, from Greenpeace to the Grocery Manufacturers Association, is opposing the ethanol subsidies. Ethanol uses 40 percent of the U.S. corn crop, putting upward pressure on corn prices.
Because fossil fuels are used both to grow corn and to refine it into ethanol, and because ethanol does not yield as much energy per gallon as gasoline, various studies have shown that ethanol does not save much energy overall and may increase greenhouse gas emissions.
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