Quash the Ethanol Beast in Honor of Iowa Caucuses

We still have work to do in ridding ourselves of the ethanol juggernaut

As the clock struck 12 am January 1, one of the most anti free market government interventions expired without renewal and without fanfare.  In honor of the Iowa Caucuses, we can now declare that the ethanol subsidies and tariffs are finally dead.  However, before we celebrate this rare piece of good news, we must remember that in order to deracinate the ethanol beast from our midst, we must destroy its third leg; the 10% blenders mandate.


Over the past decade, ethanol has been the poster child for the worst aspects of big-government crony capitalism.  The ethanol industry has used the fist of government to mandate that fuel blenders use their product, to subsidize their production with refundable tax credits, and to impose tariffs on more efficient sugar-based ethanol from Brazil.

This onerous mega-intervention on the part of government has had a devastating effect on the price of food and gas and it has forced consumers to purchase inefficient and often damaging fuel.  Yet worst of all, it has enriched an industry that would have otherwise faltered in the natural order of the free-market.  Ethanol production has increased 719% during the past decade, as almost half of all corn grown in the country is diverted for this unnatural and odious use of a product that was traditionally grown for livestock feed.  Government-backed venture socialism is indeed a powerful force.

Ethanol blenders have benefited from the 45-cent per gallon Volumetric Ethanol Excise Tax Credit (VEETC), which may be refundable for those companies that lack any excise tax liability.  The ethanol industry has pocketed over $45 billion in subsidies since 1980, with a $6 billion annual price tag in recent years.  Additionally, all foreign ethanol imports incurred a 54-cent-per-gallon import tariff, which coupled with a mandatory 2.5% ad valorem tax, adds up to an increased cost of about $0.60 per gallon.

These two policies are unlikely to be renewed; however, the most egregious part of the three-legged ethanol beast –the mandate – is still intact.  Industry leaders are employing a rope-a-dope strategy vis-à-vis the subsidies, while launching a counterattack to double down on the mandates.  They must be stopped.

Elimination of a Handout Program is not a Tax Increase

There is much debate within the conservative movement regarding the future of many government tax credits that are nothing more than handouts to specific individuals or industries.  The 45-cent per gallon ethanol tax credit is at the center of the debate in Congress.  Most conservatives view it as a gratuitous handout used to prop up a favored industry by the federal government.  Americans for Tax Reform views the elimination of this credit as tantamount to increasing taxes.  They assert that any chance in the tax codes that nets revenue for the government is considered a tax increase.

The problem with such a rationale is that there is no end-game for government programs that are ensconced in the tax code.  What if the government offers a tax credit for those who buy products of Democrat corporate cronies and then proceeds to repeal that credit?  Would it be deemed as a tax increase by ATR?  That question is already a reality due to the plethora of green tax credits.

Another dubious point about such a broad view of tax increases is its aversion to raising revenue.  As supply-siders, don't we all believe in the Laffer Curve - that certain tax deductions could actually spawn economic growth to the point that federal revenues go up?  Undoubtedly, we all desire to starve the federal behemoth, but should we oppose tax cuts on the counterintuitive assumption that such a move will increase federal revenues?

Investors Business Daily has a succinct article addressing this point in today's paper:

Ben Cardin's Ethanol Treachery

The unique characteristic of Ben Cardin is not his pertinacious liberalism; it is his slavish devotion to Democrat leadership.  And yes, there is a distinction.

Although Cardin is one of the most liberal members of the Senate, he actually co-sponsored a good piece of legislation for the first time in his career.  Several months ago, Cardin co-sponsored Senator Coburn's bill (S. 520) to repeal the ethanol subsidies and tariffs.  After years of ethanol wreaking havoc on our economy and consumers, even Al Gore and Bill Clinton conceded that the ethanol revolution was a lousy idea.  Accordingly, although I was quite befuddled over Cardin's newfound appreciation for the free market, opposition to ethanol had become almost universal.

Well, on Tuesday, Cardin had an opportunity to vouch for his unaccountable behavior by voting for Senator Tom Coburn's amendment to repeal ethanol subsidies and tariffs.  Coburn's amendment (attached to a spending bill) was identical to the bill which Cardin co-sponsored last March.  Yet, he voted against it!

Why the change of heart?

In the Senate, any member can offer an amendment to all non-budgetary bills even if it is not germane to the underlying bill.  The catch is that if the Majority Leader doesn't agree to hold a vote, the member must call for a suspension vote, requiring 67 affirmative votes to pass the bill.  Coburn used the Cloture process to bring up the amendment instead of asking King Harry Reid permission to schedule a vote.  As such, he secured the requisite 16 signatures to petition a cloture vote; a procedure which requires only 60 votes to pass the bill.  Democrat leadership was livid that Coburn circumvented them because they wanted the higher threshold so they could defeat the bill.  Consequently, Ben Cardin voted down the amendment, even though he purported to support, and even co-sponsored, a similar bill.

Cardin put out the following statement after voting down the exact bill that he supported three months ago:

"We voted against the Coburn amendment today because of the manner this issue was brought to the Senate floor. We have been assured by the Democratic Leadership that the Senate will vote on this issue later this week, allowing us to consider and debate the substance of this important policy decision." (emphasis added)

This is yet another example that Cardin is an unprincipled shill for his party leadership.  He will genuflect before his masters, even if that means opposing something that he intuitively views as the right thing to do.

It's Game Time for Farm Subsidies and Ethanol in Washington

 Another opportunity for bold-colored distinctions.

This week's legislative schedule in both houses of Congress will provide Republicans (and faux moderate Democrats) a unique opportunity to efface farm welfare by eliminating ethanol credits/tariffs and direct farm subsidies.

On the House side, the annual Agriculture Appropriations bill is expected to hit the floor as early as Tuesday.  Earlier this month, the Appropriations Committee passed the FY 2012 Ag bill, cutting $2.6 billion from 2011 spending levels, and most notably, $686 million from the WIC program.  The committee also approved an amendment by Jeff Flake to cut off direct subsidies for farms owned by those with more than $250,000 in gross adjusted income.

The bill is a good start, however, there are still more cuts that need to be introduced during the floor amendment process.  The committee-passed bill appropriates $17.25 billion in discretionary spending, while providing an additional $116.9 billion in "mandatory spending", for a total of $134.15 billion.  The USDA is one of the most profligate departments, surpassed only by HHS and DOD as the largest recipient of taxpayer dollars.  19% of all federal subsidies and welfare programs are promulgated from the USDA.  Most of the appropriations come from mandatory food subsidies and will need to be cut through welfare reform bills, but there is no reason why we should reauthorize so much spending in this bill.

In addition to the $5 billion in annual direct payments to farmers - predominantly those who grow corn, soybeans, wheat, rice, and cotton - the federal government spends billions more for crop insurance, conservation and export programs, and marketing loans.  The $5 billion in direct subsidizes should be completely eliminated for all income levels, while the other programs should be seriously curtailed.  

Ethanol will get its day of judgement in the Senate.

Mitt Romney: Running for Green Party Nomination?

First it was Romeycare, then it was cap and trade and ethanol subsidies; now it's global warming. 

“I believe the world is getting warmer, and I believe that humans have contributed to that,” he told a crowd of about 200 at a town hall meeting in Manchester, New Hampshire.

Romney proceeded to extol the virtues of solar and wind power as the next coming of our energy paradise.  As much as I fervently hope Obama is defeated, I seriously wonder if it would be counterintuitive to elect a Republican like Romney.  Either way, nobody who considers themselves conservative should even give him a second look.  Watch the RINO-in-Chief in his on words:

Bottom line:  In 2012, we need a choice, not an echo.

Sarah Palin Opposes All Energy Subsidies

Another vote against corporate 'cornyism'

As the presidential election heats up, we will continue to track where the candidates stand on ethanol and energy subsidies.  The issue of ethanol subsidies is vital to conservatives for several reasons.  First, ethanol epitomizes everything that is wrong with onerous government interventions; corporate cronyism, market distortions, higher prices for vital goods and services, and government dependency.  Also, with food and energy prices at an all time high, ethanol subsidies will provide the eventual Republican nominee with a unique opportunity to use bread and butter issues to educate voters about the virtues of the free market.

Finally, and most importantly, if the Republican nominee lacks the temerity to rebuff a handful of corn welfare recipients in Iowa, he/she will certainly lack the moxie to cut trillions from the millions of dependents on the welfare state.

Last week, Mitt Romney embraced ethanol, Tim Pawlenty disavowed his support for ethanol (while speaking in Iowa), and Newt Gingrich....well, he is Professor Cornpone.  Today, Sarah Palin rejected all energy subsidies in a brief interview with reporters in Gettysburg.  Scott Conroy of Real Clear Politics reports from Gettysburg:

Mitt Romney Still Loves His Ethanol, Especially in Iowa

Corporate cronyism/welfare is not the recipe for success in 2012.

Say anything you want about Mitt Romney, but at least he isn't flip flopping this time around.  Instead of disavowing his support for Romneycare, he fully embraced the monstrosity, albeit on a state level.  Now, amidst the growing disquiet over the outrageous ethanol subsidies, and following Tim Pawlenty's mea culpa on the issue, Mitt Romney is doubling down on his support for this odious subsidy.  Jonathan Weisman of the Wall Street Journal reports:

It was an odd setting for a policy pronouncement, but on the sidewalk outside the Historical Building here, former Massachusetts Gov. Mitt Romney embraced ethanol subsidies. It came just days after and blocks from where his rival for the Republican presidential nomination, Tim Pawlenty, said the subsidies should be phased out.

“I support the subsidy of ethanol,” he told an Iowa voter. “I believe ethanol is an important part of our energy solution for this country.” Iowa leads the nation in the production of corn, a main source of  ethanol.

Iowa is certainly the leader in fleecing the rest of the nation with their corn welfare.  Romney definitely gets points for honesty and for his cognizance of the political climate in Iowa.  However, he would be better suited to take his corn show on the road and embark on challenging Barack Obama for the Democrat nomination.  That way, his political calculations would coincide with the policies that he is seeking to represent.

Tim Pawlenty Gets Points on Ethanol, Subsidies

Tim Pawlenty announced his quest for the presidency today in Iowa and offered some real mature conservative policy initiatives.  Unfortunately, all of the presidential candidates have some serious infractions in their collective records of past public service.  Pawlenty is no different.  He was a big supporter of odious ethanol subsidies while he was Governor of Minnesota.

However, he is now coming clean and disavowing his support for subsidies.  While it is easy for a Republican presidential aspirant to become a born-again conservative when facing an ever more conservative primary electorate, however, it took guts for Pawlenty to go after ethanol while in the belly of the beast; Iowa.  Ethanol is not a high profile issue at this point (although it should be) and Pawlenty could have easily avoided the political risk of mentioning it during his announcement.

Here is what he had to say regarding ethanol and political courage:

"The truth about federal energy subsidies, including federal subsidies for ethanol, is that they have to be phased out.  We need to do it gradually.  We need to do it fairly.  But we need to do it.  

Now, I'm not some out-of-touch politician.  I served two terms as Governor of an ag state.  I fully understand and respect the critical role farming plays in our economy and our society.  I've strongly supported ethanol in various ways over the years, and I still believe in the promise of renewable fuels - both for our economy and our national security.

But even in Minnesota, when faced with fiscal challenges, we reduced ethanol subsidies.  That's where we are now in Washington, but on a much, much larger scale.

It's not only ethanol.  We need to change our approach to subsidies in all industries. 

It can't be done overnight.  The industry has made large investments, and it wouldn't be fair to pull the rug out from under it immediately.  But we must face the truth that if we want to invite more competition, more investment, and more innovation into an industry - we need to get government out.  We also need the government out of the business of handing out favors and special deals.  The free market, not freebies from politicians, should decide a company's success.  So, as part of a larger reform, we need to phase out subsidies across all sources of energy and all industries, including ethanol.  We simply can't afford them anymore.

Some people will be upset by what I'm saying.

Conventional wisdom says you can't talk about ethanol in Iowa or Social Security in Florida or financial reform on Wall Street.

But someone has to say it.  Someone has to finally stand up and level with the American people.  Someone has to lead."

Read the full text of his speech here.

Haley Barbour and the Regressive Economics of Farm Subsidies

Farm subsidies are the most popular form of corporate cronyism among many Republicans.  Unfortunately, but not surprisingly, this regressive form of 'progressive' market intervention garners enthusiastic support from Republican presidential contenders, especially preceding the Iowa Caucuses.  Haley Barbour is the latest potential presidential candidate to prostrate on the altar of the farm lobby and support the $20 billion fleecing of the taxpayer.  Even with the exit of John Thune from the presidential sweepstakes, the farm lobby still boasts many champions of taxpayer handouts among the 2012 hopefuls.

Yesterday, in an interview with the Daily Caller, Barbour offered the following counterintuitive economic justification of government intervention in the food market.  Here are some of his greatest hits:

“What we want to have in the United States is abundant food at a responsibly low price. To do that, we have to have an appropriately large supply of agricultural products. When sales volumes are good, prices are reasonable, there shouldn’t be any farm subsidies. But for natural reasons, nature, or what other countries are doing in terms of how they’re handling their markets, sometimes it is appropriate to have farm subsidies.”

“What you want is to have policies that lead to ample supply and prices that yield good prices for the person at the grocery store but profits for the farmers.”

Let's expound upon Barbour's economic theory.  Barbour opines that government subsidies, most of which go to wealthy farmers, are often indispensable because they increase food supply and lower prices at the grocery store during rough times.  Well, why is food inflation dramatically rising, even as farmers continue to receive record levels of subsidies?  Indeed every American (at least those who are not on food stamps) is suffering from the lack of "good prices" at the grocery store.

The Left's War on Food for Poor Continues

Last week, we reported on the record number of Americans enrolled in the food stamp program.  As we observe the efforts of the left to drive up the cost of food, there is no wonder why so many people are having trouble feeding their families.  Their policies mandating the use of corn as fuel, as well as the inflationary aspects of the Fed's recent QE2 policies, have kept the cost of food high for a long time.  Now, Obama's EPA is working on a proposal to increase the percentage of ethanol in gasoline from 10% to 15%.  What about its effect on food prices?  Let them use food stamps, says Obama's government.

It's ironic that the government plans to augment ethanol mandates even as poor and developing countries are facing skyrocketing food prices.  There is no doubt that ethanol is one of the culprits behind the economic upheaval that led to the political turmoil in Egypt.  Egypt has to import most of their wheat, and with grain-based commodities rising as a result of increased ethanol production, Egyptians simply cannot afford a loaf of bread.  Almost 40% of corn produced in the U.S. is used for this substandard fuel, yet it is still not enough of a poverty enhancer for the left.  Yes, the very same left that purports to care about the impoverished and the third world.

In addition to its disastrous effects on the food supply, this decision could turn out to be dangerous for motorists.  Higher bio-fuel blends have already been tested and have shown a propensity to melt the gas pumps and storage tanks!  Furthermore, even the EPA has come out with a long report detailing the negative environmental effects that ethanol production has on the water and soil.  So, we have a situation in which mandates, tariffs, and tax credits enrich the government/corporate complex, while driving up the cost of fuel and food on the poor and actually harming the environment.  Who are the ones to care for the poor and the environment again?

Meanwhile, potential presidential candidate Newt Gingrich gave a speech defending ethanol in...Iowa! (The WSJ has a great write-up on Newt's corn boondoggle here.) He can join Senator John Thune as a presidential candidate who is willing to peddle corporate cronyism in order to win Iowa.

Liberal Economics: Drive up Cost of Food on Poor, While Benefiting Corporate Donors

The Democrats have thrived in public office since FDR by cementing their power through the perpetuation of government and subsidization of poverty.  Pick an industry and the name of the game is the same.  They blow up the private sector through any mix of taxation, regulation, and litigation.  Then, as jobs are cut and the cost of the good or service of that industry skyrockets, the liberals swoop in with more government solutions to solve problems incurred by the original governmental intervention.  Worse, these programs usually benefit their corporate friends who remit some of their new-found cash to Democrat reelection committees.

There is no better illustration of the fatuous cycle of government than the Democrat's food policy.  They have artificially inflated the cost of food through ethanol mandates, environmental regulations, and new FDA regulations.  In addition, their constriction of oil drilling, refinery constructing, nuclear power, and coal extraction, has had a residual effect on the cost of food transportation.  Now that these regressive policies from the progressives have come home to roost, and people cannot afford the gratuitously high cost of food, they are waiting at the door with handouts.

According to the latest data released by the USDA,  an additional 289,737 people were added to the food stamp program during October 2010, the first month of FY 2011.  That is roughly a 14% increase in enrollment and costs of the program on a year-over-year basis.  There are now a record 43,200,878 people and 20,183,148 households enrolled in the program which costs us almost $5.8 billion annually.  At this rate, the food stamp program will cost taxpayers at least $70 billion for FY 2011, and will likely increase as enrollment in the program continues to skyrocket.

John Thune Attacks Conservatives, Ignores Ethanol Support

Potential presidential candidate John Thune (R-Ethanol) lashed out at conservative critics of the Porkulus II (Obama tax deal) today.  Thune said on the Senate floor,"Inaction is not an option, and advocating against this proposal is no different than advocating for higher taxes.”

It's funny that Thune makes no mention of the ethanol subsidies that he so emphatically supports.  He has supported subsides, tariffs, and mandates that have driven up the costs of food and fuel on every American.  If this is not a tax, please explain to us what is. So, Mr. Thune, who is the one who is raising taxes after all?

Senator Orin Hatch (R-UT) was on the Sean Hannity show last hour and expressed the same arrogance as Thune.  It is all about deal making and working with the political reality of Democrat control.  But here is the dirty little secret.  Even if these guys had 70 Senators, they would still support big government programs.  Thune and Hatch support ethanol subsidies even as a stand alone bill.  It has nothing to do with the tax deal.  They are always demanding that we support big government bills under the guise of it being "the best political option at the time".  Well, I'm waiting for a time in which the Republicans will finally stand on principle.

The Ethanol Juggernaut :Do Republicans Have the Will to Stop Big Government?

It's always politically advantageous to support tax cuts.  However, it takes more intransigence and fortitude to oppose big government programs and special interest handouts.  It is even more arduous to oppose such programs when they are coupled with tax cuts as part of a backroom compromise.  Based upon Senator Jim Inhofe's comments to NRO it appears that there aren't too many GOP Senators who are down for the struggle.  Concerning the green handouts hidden in H.R. 4853, Inhofe told National Review's Robert Costa:

“94 percent of the provisions are meaningful. For people talking about wind and ethanol subsidies, you’re talking about 2 percent of the whole deal.”

Well, if Inhofe is signing on to this, then there won't be too many others joining Jim DeMint.  If today's cloture vote to proceed with debate is any indication of the final outcome, only 5 Republicans oppose the bill: Coburn, DeMint, Ensign, Sessions, and Voinovich.  (Although Voinovich opposes it on liberal grounds).  What concerns me more than Inhofe's support for the tax deal is the way he expresses it.  I could respect the fact that some believe that this is the best political decision we could make given the circumstances.  However, to dismiss the permanent welfare benefits, the special interest handouts, and the regressive ethanol "Hawkeye Handout" as "2 percent", is very disconcerting.

The Tax Deal and the Bush Republicans

President George W. Bush and his compatriots introduced a new typology of conservatism called "compassionate conservatism".  They believed in big government, entitlement and transfer programs, market distortions such as ethanol mandates, and special interest handouts.  They felt that it was all fine and dandy to grow government, as long as they advocated for tax reform.

Senate Minority Leader Mitch McConnell has always been a paradigm Bush Republican.  It is therefore not surprising why he so emphatically supports the Obama tax deal. 

All throughout the week, we have highlighted the disastrous big government spending and ethanol price distortions that were part of the larger compromise.  All of these permanent concessions are being used as bait for temporarily retaining the marginal tax rates and reinstating the death tax.  I'm glad to hear that Rush is categorically rejecting the compromise even if it means that we miss the deadline.  The tax rates for 2011 will not be finalized until the end of the year and we will have the political clout and mandate to repeal them retroactively when we retake the House on January 3.  On the other hand, if we acquiesce to this deal, there will be no way to repeal the destructive entitlements, market-distorting corn welfare and tariffs, and God knows what other special interest handouts will be slipped into this bill before the session is over.

What's Up with the Extension for Ethanol Subsidies?

As conservatives, we understand that not everything that is dubbed as a tax cut is a good thing.  Liberals are wrought to describe handouts as tax cuts and tax cuts as handouts.  Thus, the extension of the regressive, job killing, price hiking ethanol subsidies are not good tax cuts and should not be extended.  Yet, through all of the discussion concerning the deal on the Bush tax cuts, there is a total blackout concerning the deal with the ethanol subsidies.  Tim Carney reports at the Washington Examiner, that Chuck Grassley (R-Ethanol) is claiming that a one year extension of these subsidies is part of the deal.  He draws attention to this article from the Quad-City Times:

"A deal to extend the Bush-era tax cuts also includes action on ethanol and biodiesel credits, U.S. Sen. Chuck Grassley, R-Iowa, said Tuesday.
The details aren’t clear yet, but Grassley told reporters that the ethanol and biodiesel tax credits would get a temporary extension, through 2011.
The biodiesel credit of $1 a gallon expired last year, and farm-state lawmakers have blamed the expiration for the idling of biodiesel plants.
The ethanol credit, at 45 cents per gallon, is scheduled to expire at the end of the year.
Grassley said the biodiesel credit extension also included applying it retroactively to 2010."

Republicans have already agreed to a permanent unemployment welfare system in order to extend the tax cuts for just two years.  They also agreed to bring back the death tax, albeit at a lower rate.  Are we now going to agree to more corn welfare for special interest groups?  According to the CBO, the ethanol subsidies cost us $6 billion annually.  The payroll tax cut will cost social security $120 billion and the unemployment welfare will cost $57 billion.  How much more are we going to bankrupt the nation in order to make a deal with Obama on something that he is already compelled to support?  Where is this deal anyway?  What else is hidden in this compromise?  Could Senator Kyl provide us with a hard copy?

There is currently a robust debate among conservatives whether the current tax deal is the best we could get from Obama.  But don't the supporters want to see the full copy of the deal before they sign off on it?  Is there any limit to the number of poison pills that the deal  would contain before Republicans will oppose it?  How can we blindly trust an invisible deal made with the devil that already contains extraneous details that are detrimental to this country?  I guess it is all about compromise for some GOPers.  To hell with the details.

Six Republicans Sign Letter Demanding Ethanol Subsidy Extension

The ethanol mandates are one of the most regressive socialist interventions into the free market that have been peddled by the progressives. [Here is our editorial on the costs of ethanol]  Unfortunately, many Republicans, red state ones at that, are signing onto the extension of these backdoor taxes on food and fuel.  6 Republicans joined seven Democrats in penning a letter to Harry Reid and Mitch McConnell demanding that the subsidies be renewed before the end of this congress. 

Here is a list of the Republicans who signed the letter together with their socialist compatriots.

Chuck Grassley
Kit Bond
Sam Brownback
John Thune
Mike Johanns
Mark Kirk

Mark Kirk is no surprise.  He has wasted no time in voting with the democrats on virtually every issue since the minute he took office.  The rest of these guys are from red states.  Did we gain anything from the midterm elections, or did it never take place?  Kit Bond and Sam Brownback are retiring and it remains to be seen if Moran and Blunt will be any better on this issue.  Chuck Grassley?  Well, he is .... Chuck Grassley after all.  Johanns and Thune are really upsetting.  Is this the best we can do from ruby red states?  John Thune should kiss his bid for the presidency goodbye.