Senators Chuck Grassley and Tom Harkin both voted to preserve a key ethanol tax credit today, as an effort to end that credit six months early fell way short of the 60 votes needed in the U.S. Senate. Republican Tom Coburn of Oklahoma had submitted an amendment to repeal the 45-cent-per-gallon volumetric ethanol excise tax credit for ethanol blenders as of July 1. The credit is scheduled to expire at the end of 2011. Coburn’s amendment “also would have eliminated a 54 cent-per-gallon tariff on imported ethanol,” saving the federal government approximately $2.7 billion total. Only 40 senators (34 Republicans and six who caucus with Democrats) voted for a cloture motion on Coburn’s amendment. Grassley and Harkin were among the 59 senators (13 Republicans and 46 who caucus with Democrats) who voted against cloture; click here for the roll call.
Today’s vote might have been much closer had Coburn not used unusual Senate procedures to force the legislation to the floor. Democratic Senate leaders whipped the vote against Coburn’s amendment, bringing around some Democrats who oppose ethanol subsidies. Democrat Dianne Feinstein, a co-sponsor of the Coburn amendment, nonetheless voted no on today’s cloture motion and said publicly, “If it weren’t for the process, we would have 60 votes.” Feinstein had urged Coburn “to withdraw his amendment and wait until next week” for a Senate vote.
Most of the Republicans who voted against the Coburn amendment represent large corn-producing states. A major anti-tax group’s opposition to the measure may have peeled off a few GOP votes as well. Grover Norquist’s group Americans for Tax Reform argued that eliminating any tax credit without simultaneously adding new tax cuts amounts to a tax increase.
Ethanol supporters also reduced support for Coburn’s amendment by introducing a rival proposal yesterday. Harkin and Grassley are both co-sponsoring the new bipartisan Senate legislation:
While Coburn’s language would completely eliminate the subsidy, the pro-ethanol proposal would cut off the subsidy on July 1, and replace it with a variable subsidy that fluctuates with the price of oil. […]
Under this proposal, ethanol blenders would get no subsidy at all when oil prices are above $90 a barrel. If oil falls to between $80 and $90 a barrel, they would get a six cents per gallon subsidy. Another six cents would be added for each $10 drop in the price of oil, and a maximum subsidy of 30 cents a gallon could be received when oil falls to $50 a barrel or less (a summary of the bill is here).
That’s still less than the current 45 cents a gallon subsidy that ethanol blenders receive currently, regardless of the price of oil.
Proponents of the bill say ending the current system on July 1 and moving to a variable subsidy would save $2.5 billion. In a nod to Coburn and his supporters, the bill would use $1 billion of that for deficit reduction.
The rest would be used for the variable subsidy, but also for the development of ethanol infrastructure and other incentives. For example, the bill would expand tax credits to ethanol blender pumps, and extend through 2014 the small producer ethanol credit.
After the jump I’ve posted Grassley’s floor statement against the Coburn amendment and his comments released after today’s vote. I will update this post if I see official comment from Harkin.
UPDATE: Added Harkin’s statement praising the Senate for rejecting “this misguided amendment.” The Iowa Environmental Council reminds us that the government’s pro-ethanol policy has unintended consequences for water quality.
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