Tom Coburn's tax hike? The ethanol subsidy and the complexities of corporate welfare 

Government support for ethanol is among the most destructive and wasteful giveaways to special interests today. Archer Daniels Midland and other ethanol and corn giants profit from a raft of subsidies that prop up an inefficient and costly fuel that wreaks environmental damage everywhere from American rivers to the rainforests -- all while driving up the price of food.

Senators Tom Coburn and Ben Cardin today introduced a bill to get rid of the most venerable big ethanol subsidy: the blenders tax credit. The basic idea of the blenders' credit is that oil companies get a 45-cent tax break for every gallon ethanol they blend into their gasoline.

In the past, this drove demand for ethanol -- it was the only way to get people to buy a more expensive, less powerful version of gasoline. But today, federal mandates -- requiring blenders to buy ethanol -- drives demand. All the blender credit does is lower taxes for the blenders.

So it's a naked giveaway for a pointless fuel. Ending it seems good, right?

But the Cardin-Coburn bill doesn't include an accompanying tax cut, which means it's a tax-hike bill. Yes, it has the conservative virtues of ending destructive distortions in the market. But the press release about the bill quotes Coburn as saying "The $6 billion we waste every year on corporate welfare should instead stay in taxpayers’ pockets where it can be used to spur innovation, stimulate growth and create jobs."

But hiking taxes on blenders doesn't keep any money "in taxpayers' pockets" -- it keeps the money in appropriators' pockets, where it won't "stimuluate growth and create jobs," but will instead go to reward some other special interest.

I'm glad both parties are going after ethanol subsidies, but I would not expect a conservative Senator to propose a tax hike as his opening bid.

UPDATE, 3:30 PM: Coburn's office has sent me a letter from many lobbies and interest groups supporting the bill. Signatories include the National Taxpayers Union and Americans for Limited Government, both conservative groups.

Josh Barro of the Manhattan Institute sends me this blog post he wrote about tax expenditures.

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Timothy P. Carney

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