The public choice school of economics describes how the government and special interests collude against the public good, and it’s hard to think of a better model than the ethanol industry. Despite opposition from an emerging left-right anti-boondoggle coalition, the Senate version of the White House-GOP tax deal preserves the corn fuel’s multiple subsidies.
One measure of ethanol’s political clout is that reformers merely hoped to cut the tax credit for blending ethanol into gasoline to 36 cents per gallon from the current 45 cents that was due to expire at the end of the year. Instead, the deal keeps the full subsidy in place for another year, at a cost to taxpayers of $4.9 billion, and it retains the 54-cent per gallon tariff on ethanol imports that was also expiring.
Direct subsidies and trade protectionism, plus mandates that force consumers to buy ethanol: This is the trifecta of government support, and all for an industry that is 30 years old and that even Al Gore now admits serves none of its advertised environmental purposes.
The ethanol extension is the bipartisan handiwork of Iowa Senators Chuck Grassley and Tom Harkin, who both regularly abandon their professed principles (fiscal conservatism for the Republican and equity for the Democrat) in the service of agribusiness.
Discredit also goes to the environmental lobby and its running game of bait and switch. The greens have turned on ethanol because of its carbon emissions, but their tax bill support has also been purchased with extensions of such energy subsidies as a Treasury grant program for wind and other renewable projects that were part of the stimulus.
The greater political risk here is for Republicans, who should worry that the tax bill is turning into a special interest spectacle. The bill revives a $1 a gallon biodiesel tax credit at a cost of nearly $2 billion, and there’s $202 million for “incentives for alternative fuel,” $331 million for a 50% tax credit for maintaining railroad tracks, and so on. These credits are a form of special interest spending via the tax code, which is precisely the business as usual behavior that Republicans told tea party voters they wouldn’t engage in.
These business subsidies are grease for Senate votes in favor of the deal, so the only chance to remove them would be the kind of public outcry that attacked the Cornhusker Kickback and other ObamaCare fiascoes. Call these ethanol favors the Hawkeye Handouts.