POLITICS:

Big-time conservatives squabble over ethanol

Two conservative heavyweights yesterday traded jabs over ethanol, as Sen. Tom Coburn (R-Okla.) took aim at the group founded by anti-tax activist Grover Norquist for opposing his plan to end tax credits for companies that blend the biofuel.

The clash between Coburn and the group Americans for Tax Reform (ATR) flared over a bid by the Oklahoman and Sen. Ben Cardin (D-Md.) to end the 45-cent-per-gallon federal tax credit for ethanol blenders. A passel of leading conservative groups are backing Coburn's plan, but ATR is the fly in the ointment -- insisting that without an equivalent reduction elsewhere in the tax code, the proposal amounts to a net tax increase.

"By opposing my amendment, you are defending wasteful spending and a de facto tax increase on every American," Coburn told Norquist in a letter yesterday. "Ethanol subsidies are a spending program placed in the tax code that increases the burden of government, keeps tax rates artificially high, and forces consumers to pay more for food and energy."

ATR tax policy director Ryan Ellis responded within hours in a letter of his own that took no issue with Coburn's criticism of government ethanol supports. "[T]he best policy outcome is to eliminate the ethanol tax credit in a way that leaves money in the hands of taxpayers, not increases the amount of money going to Washington for the Appropriations Committees to spend," Ellis told Coburn.

"Your amendment as written to repeal the ethanol credit (unfortunately) does the latter."

The daylong back-and-forth illuminates a broader, still-simmering debate among conservatives over energy subsidies as well as the role taxes should play in any future bipartisan deal to slash the federal deficit.

The 112th Congress' fresh crop of Republicans, many of them riding into office with tea party support, have stoked a new push from the right to end energy subsidies of all stripes. In a letter to the Hill this month, ATR joined 28 other conservative groups in urging a phase-out of mandates, loan guarantees, tax credits and other subsidies for all energy sources -- without exempting fossil fuels or ethanol (E&E Daily, March 18).

But that letter featured language calling for the expiration of energy tax benefits to be offset by tax cuts elsewhere, a provision that Ellis said was specifically crafted to address the ethanol blenders' credit.

"It can be anything you want," Ellis said in an interview when asked where ATR would prefer to direct such offsetting tax cuts. As one example that "would probably be big enough" to cover the sunsetting of the ethanol credit, he cited a $50 increase in the general standard deduction for taxpayers.

Yesterday's flap over eliminating the ethanol credit was also propelled by conservatives' internecine battle over long-term tax increases, albeit in a more subtle fashion. Ellis noted in his missive to Coburn that "our position on this matter has little to do with any specific deduction or credit and much to do with avoiding massive tax increases, such as those you supported" as part of the recommendations issued by the bipartisan deficit commission chartered last year by President Obama (E&ENews PM, Dec. 1, 2010).

"That plan would have not simply eliminated guppy tax credits like ethanol, but also chopped away at the whale-sized mortgage interest deduction, charitable deduction, state and local tax deduction and the employer-provided healthcare exclusion," Ellis wrote.

Coburn offered his own wide-ranging critique of ATR's stance that eliminating specific tax benefits as part of any broader tax reform deal would violate its "taxpayer protection pledge" -- which is signed by many a Republican candidate to lock down election-year support.

"Continuing to issue blanket defenses of all tax expenditures is a profoundly misguided embrace of progressive, activist government and a strategy for tax complexity, tax deferment, excessive spending, and unsustainable deficits," Coburn wrote, slamming the ATR insistence on tax-cut offsets as "hardly sound conservative economics."

Several conservative pundits have joined the fray over the senators' ethanol plan in recent days. Washington Examiner columnist Timothy Carney deemed the Coburn-Cardin proposal a "tax hike" earlier this month, while RedState.com founder Erick Erickson published a column yesterday urging conservatives to "stand with Tom Coburn," not Norquist.

Amendment's fate

Cardin told reporters yesterday that it remains unclear whether the blenders' credit repeal would receive a vote as part of the small business bill now pending on the Senate floor. But ethanol industry groups nonetheless are marshaling their clout against it, sending a joint letter on March 17 arguing that a rollback of the credit would "keep America addicted to foreign oil."

That defense was echoed yesterday by Sen. John Thune (R-S.D.), one of several high-ranking Midwestern ethanol backers in the Capitol.

Asked how his support for the blenders' credit jibes with the GOP's emphasis on cutting spending as well as gasoline prices, Thune said he believes "ethanol will keep gas prices from going higher than they otherwise would. It's about 12-and-a-half-million gallons that would have to be replaced with foreign oil."

Click here to read Coburn's letter to Norquist.

Click here to read ATR's response to the senator.

Reporter Jean Chemnick contributed.

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