Senate Rejects Repeal of Ethanol Tax Credit

The Senate on June 14 rejected, by a 40-to-59 margin, a proposal to eliminate tax subsidies for ethanol by repealing the Volumetric Ethanol Excise Tax Credit (VEETC). The measure, offered by Sen. Tom Coburn, R-Okla., as an amendment to an underlying economic development reauthorization bill (Sen 782), would have repealed the 45-cents-per-gallon credit for ethanol blended gasoline and a corresponding 54-cent-per-gallon tariff on imported ethanol. White House Press Secretary Jay Carney said the administration supports reforming the ethanol tax cut in a way that can reduce costs but not complete repeal.

The subsidy totals nearly $6 billion a year and its repeal was supported by more than 45 groups comprised of business associations, agricultural groups, environmental groups and development organizations. They claimed that continuing to subsidize oil companies to blend ethanol, which they are already required to do by the Renewable Fuels Standard, is wasteful and unnecessary. They said the amendment would have virtually no impact on ethanol production or fuel prices.

Prior to the vote however, Senate Finance Committee member Charles E. Grassley, R-Iowa, charged that the amendment would raise the tax on domestic energy production by repealing an incentive for the use of homegrown ethanol. “It won’t lead to the production of any more energy. It won’t create a single job. It very well could lead to less domestic energy production and less employment in the U.S. energy sector,” said Grassley.

Grassley also argued that, when oil prices are high, a natural incentive should exist in the market to drive ethanol use. Grassley and Senate Budget Committee Chairman Kent Conrad, D-N.D., introduced legislation on May 4 that would reduce and redirect federal tax incentives for ethanol (Sen 884). The bill would reduce the VEETC to a fixed rate of 20 cents in 2012, and 15 cents in 2013. It would then convert to a variable tax incentive for the remaining three years, based on the price of crude oil. It also would extend, through 2016, the alternative fuel refueling property credit, the cellulosic producers’ tax credit and the special depreciation allowance for cellulosic biofuel plant property.

Following the vote, Grassley issued a statement urging further review of energy tax policy. “Energy tax policy ought to be reviewed, across the board, without ethanol being singled out.” He added that “the review ought to include the tax incentives for all energy sources, including oil and gas provisions that have been permanent tax law for nearly 100 years.”

By Jeff Carlson and Paula Cruickshank, CCH News Staff

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