Ethanol Subsidies: Republicans Senators Target $6B Tax Credit

April 18, 2011— -- Congressional Republicans, hungry for billions of dollars in savings from the federal budget, are expressing new willingness to touch what has previously been a sacred cow: taxpayer subsidies for corn-based ethanol.

The federal government has given a nearly $6 billion tax credit to American producers of the bio-fuel every year since 2005, and doled out additional billions in special grants and loan guarantees for more than 30 years.

Now a growing number of lawmakers, including several from agricultural states, say it's time for at least some of the special treatment to end.

"I've talked to ethanol people. I've said that this is something that's got to make economic sense," Indiana Republican Sen. Dan Coats told ABC News of the tax credits he's previously fought to defend.

"We may need phase down to the point where it does that. And I'm willing to put that on the table and have an honest discussion about it," he said.

Oklahoma Sen. Tom Coburn, who's part of the bipartisan "gang of six" working to solve the budget crisis, has proposed immediately eliminating the 45-cents-a-gallon tax credit. The move would, in effect, force ethanol producers to pay more in taxes and give the government a $4 billion boost in revenue through the end of this year.

"Ethanol subsidies are a spending program wrongly placed in the tax code that increases the burden of government, keeps tax rates artificially high, and forces consumers to pay more for food and energy," Coburn said in a letter last month in response to criticism from an anti-tax group.

Elimination of the business tax credit is also part of House Republican Budget Committee Chairman Paul Ryan's controversial budget blueprint for the next fiscal year.

But defenders of subsidies -- including such likely GOP presidential candidates as former House Speaker Newt Gingrich and former Minnesota Gov. Tim Pawlenty -- say they won't let them go down without a fight.

"If you create a cliff, you're going to create a significant job loss in rural America," Agriculture Secretary Tom Vilsack told a Senate panel Wednesday of a plan to abruptly end the tax credit. Vilsack estimated 400,000 workers connected to the ethanol industry could be affected nationwide.

Industry lobbyists say reducing government support for ethanol production will also undermine efforts to reduce dependence on foreign oil, since deep-pocketed oil companies dominate the market and receive lucrative government subsidies of their own.

"The advanced ethanol industry is not looking for handouts. It is looking for a level-playing field and a durable, predictable and cost-effective policy commitment to advanced bio-fuels over time," Brooke Coleman, executive director of the Advanced Ethanol Council, an industry trade group, told the Senate Committee.

But independent analysts, including the nonpartisan Government Accounting Office, say the industry tax credit is unnecessary -- duplicating other federal efforts that already guarantee demand for American ethanol will continue to thrive.

The government-mandated Renewable Fuel Standard, for example, requires U.S. gasoline distributors to mix ethanol in their gas and increase use of the fuel by billions of gallons through 2022.

"The ethanol tax credit was important in helping to create a profitable corn starch ethanol industry when the industry had to fund investment in new facilities," the GAO wrote in a report last month. "But it is less important now for sustaining the industry because most of the capital investment in corn starch ethanol refineries has already been made."

The credit, which was renewed in December, is set to expire at the end of the year unless Congress acts. Many experts are optimistic that heightened focus on the federal budget deficit will allow a majority of lawmakers to support expiration.

If the credit is left intact through 2011, it will have cost taxpayers a cumulative $30.5 billion since 2005.