In a report for “All Things Considered,” National Public Radio (NPR) reported  that a Senate vote to repeal certain tax incentives for ethanol fuel production “splinter[ed]” the GOP, even though a clear majority of Senate Republicans favored the repeal.
NPR ran the headline, “Ethanol Subsidies Survive Senate Vote, Splinter GOP,” even as it reported that “Where senators stand on ethanol tax subsidies often has more to do with which state they’re from than which party they belong to.” The report also asserted that Sen. Tom Coburn (R-OK) had “resorted to a parliamentary maneuver to oblige the Senate” to consider his proposal to halt the tax breaks.
NPR spoke with “Anti-tax crusader” Grover Norquist of Americans for Tax Reform who “question[ed] Coburn’s motives in trying to end the ethanol tax breaks.”
Coburn’s measure failed, with 34 Republicans (70% of the caucus) voting to end the subsidies. However, half a dozen Democrats (11% of the caucus) also voted to end the subsidies. As many Republicans voted to keep the subsidies—six—as Democrats voted to end them. But NPR apparently does not believe the Democratic Caucus is also splintering.
NPR asserts that the “tally showed that when it comes to at least one tax break, even Republicans who generally oppose raising taxes are willing to make an exception.” Actually, free-market economists point out that ethanol credits are tax breaks in name only.
“Special provisions, like ethanol tax breaks, are effectively subsidies,” Doug Bandow, a senior fellow at the Cato Institute argues. “To the extent that the alcohol fuel mixture credit exceeds one’s tax liability (under Section 4081), or if the person has no Section 4081 liability, ethanol blenders may file for a refund equal to the credit,” the Renewable Fuels Association claims.
“In other words,” investigative reporter Timothy P. Carney  writes in his column in The Washington Examiner, “this ‘tax credit’ is really just a payment from the U.S. Treasury that has nothing to do with one’s tax liability.”
Sen. Coburn has pointed out that ethanol enjoys “a triple crown of government intervention: its use is mandated by law, it is protected by tariffs and companies are paid by the federal government to use it.”
Investor’s Business Daily offered a different take on the subject. In an unsigned editorial, IBD  pointed out that even the Coburn bill to end ethanol subsidies “would end two of these [subsidies] — the 45-cents-a-gallon tax credit and the 54-cents-a-gallon import tariff.”
Meanwhile, “it would leave in place the equally awful Renewable Fuel Standard, enacted under President Bush in 2005 and expanded in 2007, which mandates ever-increasing amounts of ethanol and other renewable fuels in gasoline.”
IBD notes that “the Congressional Budget Office calculated that up to 15% of the rise in food prices from 2007-2008 was due to the increased use of ethanol.”
“Look at it this way,” the late professor Christopher T. Warden, who was once with IBD, pointed out in Accuracy in Academia’s textbook , Voodoo Anyone? How to understand economics without really trying:
A corn processor pays taxes on the profit it makes from selling corn. If it can reduce the amount of taxes it pays, it gets to keep more of its profit. So, if a processor sells corn for use as food or feed, the processor has to pay more in taxes. But if he sells corn for use as ethanol, he pockets more of his profit because of the tax break. In addition, the government has required that 15 percent of all motor fuel be made from renewable sources by 2012. So, the government has essentially guaranteed this higher profit.