Ethanol subsidies 

Tom Coburn wrote an op-ed on our pages yesterday about his bill to repeal one of the many subsidies for ethanol. I wanted to register my agreement with Coburn's essay, even though it was written as a rebuttal of my blog post earlier this week.

I had pointed out that the specific ethanol subsidy Coburn's bill targets is a tax credit. In a sense, the bill is a tax hike. But Coburn has an important response to this with two dimensions:

1) The ethanol tax credit is "refundable" meaning companies can get the "tax credit" even if they owe no taxes. In some ways, the credit counts as "spending" more than as "tax break."

2) Politicians Left and Right (certainly including Presidents Bush and Obama) have used tax credits as a way to steer the economy and reward special interests while hiding these gifts from the sort of scrutiny spending gets. As Coburn puts it:

If it were solely in the discretionary budget and controlled by the appropriators it would be unmasked as a rank cash payment. Instead, Congress has shifted the spending program to the tax code to protect it from being cut.

Coburn's op-ed goes on to spell out many of ethanol's various harms to our economy, government, and environment, as I've done in many columns and two books.

I still have some quibbles with some of what Coburn's office has put out on this topic, but I just want to clarify -- and repeat -- the point I intended to make with my blog post:

When targeting a subsidy that has been created as a tax break, it's the perfect opportunity to pair it with a reduction in another tax. I hope Coburn's bill passes, and I would vote for it. But my critique of Coburn is this: if you're increasing government revenue by eliminating a tax credit, why not pair it with a tax cut -- say, elimination of the tariff on imported ethanol, a cut in the federal gas tax, or a small, across-the-board income tax cut?

In any event, after Coburn and Ben Cardin, D-Md., kill the ethanol tax credit, their next project should be the ethanol mandate.

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Timothy P. Carney

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