Editorial: Cut the ethanol subsidy, but be fair

  • Updated: June 26, 2011 - 7:49 PM

Why is one fuel being targeted but another -- oil -- isn't?

Sen. Amy Klobuchar, D-Minn

Photo: Jim Mone, Associated Press

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Oklahoma Republican Sen. Tom Coburn spoke stirringly about the nation's crushing debt load recently as he urged his fellow U.S. senators to get rid of the ethanol earmark and tariff.

"The days of placing spending programs in the tax code and giving them holy status are over,'' said Coburn, who teamed up with California Democratic Sen. Dianne Feinstein to push through a largely symbolic vote to end ethanol subsidies at the end of this month.

The best way to pay down the nation's $14.3 trillion debt?

"Reducing wasteful spending a billion dollars at a time,'' Coburn said.

Coburn has a point about the ethanol industry, which has enjoyed for far too long a government support hat trick: a blender tax credit of 45 cents per gallon, a tariff on foreign ethanol and a mandate requiring a set amount of ethanol to be used.

But where was this oil-state senator's deficit piety a month ago when he and other Republican senators led the charge to protect billion-dollar tax breaks for major oil companies? In May, with the industry reaping near-record profits, Coburn was one of 48 mostly GOP senators who voted to keep key oil tax incentives intact.

Over the past week, Minnesota corn growers and ethanol producers were justifiably wondering why it's OK to cut ethanol supports but not those for oil.

The Coburn-Feinstein measure would save about $6 billion a year in ethanol incentives. Reducing tax credits for the big five oil companies could save up to $21 billion over the next decade.

The Coburn office's reply to an editorial writer's query was less than satisfying. The senator "would prefer to get rid of all subsidies and move toward a flat tax. That said, not all subsidies are created equal. He wants to highlight the most egregious and make the case for fundamental tax reform."

So why are ethanol tax giveaways more egregious than those for one of the world's most lucrative industries? Again, an unsatisfactory answer: "Because, for better or worse, we have a fossil-fuel-based economy, not a corn-based economy."

The time has indeed come to end the ethanol industry's overreliance on taxpayers, but this process must be done carefully and with minimal risk to the Midwestern economy.

The ethanol industry -- an oil competitor -- also shouldn't be unfairly singled out. Minnesota has a critical stake in ensuring that this is done right. The state is home to 21 ethanol plants. The industry generates $3.1 billion in annual economic output. About 8,300 jobs in the state are dependent on it.

The Coburn-Feinstein measure isn't going anywhere for procedural reasons. Nevertheless, it strongly signaled that the ethanol blender tax credit, which was set to expire at the end of this year, will not be renewed.

This newspaper supports ending this tax giveaway. The money goes into refiners' pockets. With the mandate still in place, there's no need to pay them to follow the law. Continuing demand means Minnesota's ethanol industry will weather the transition.

Minnesota Democratic Sen. Amy Klobuchar, along with South Dakota Republican Sen. John Thune, have offered up a pragmatic option to end the blender tax credit. They would end the tax credit in July, applying $1 billion in savings toward the deficit.

At the same time, they'd dedicate $1.5 billion in savings for alternative fuel infrastructure (such as pumps that would also service electric cars) and maintain some supports for small producers and those researching next-generation biofuels.

Our preference would be simply to go cold-turkey on ethanol subsidies. But Klobuchar's glide-path approach is reasonable when much bigger, more profitable industries aren't asked to do the same.

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  • THE OTHER SUBSIDY

    "What the heck is the argument for keeping petroleum subsidies? It's just mystifying to me.''

    RALPH GROSCHEN, newly retired Minnesota Department of Agriculture senior agricultural marketing specialist

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