Ethanol subsidies set to expire at year's end

The end of the year is upon us and all eyes (and ears) are waiting to see what the Congress will do about the tax picture. But there is another item on the end-of-year horizon that is just as important a test for Congress. It is flying under the radar, so there is not as much discussion about it, but it can be just as telling as the tax cut extension issue.

At the end of the year both the ethanol tariff and its companion tax credit are due to expire. Will the fresh GOP members and chastised Dems in Congress let them expire, or will the lobbyists win again?

The 54-cent tariff on imported ethanol protects American farmers from competition from Brazilian ethanol producers; the 45-cent tax credit to oil companies drains up to $6 billion a year from the general fund. Both are an additional tax on the consumer since they raise the price of gasoline. More than that-they raise the price of corn worldwide, and therefore of beef, poultry and other livestock.

The consequence (unintended of course) is a shortage of and higher prices for food as well as fuel. (A corollary unintended consequence is that the use of ethanol to reduce the use of fossil fuels is counterproductive. The production and transportation of ethanol is a high energy enterprise using huge amounts of fossil fuel for fertilizer in growing, for production, and for transportation to the pump since it is too corrosive to be transported through pipelines.)

Even the chief tree hugger, Al Gore, considers the support for ethanol a mistake:

Former U.S. vice-president Al Gore said support for corn-based ethanol in the United States was "not a good policy",

One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president."

There will be tremendous lobbying pressure on every member of Congress to renew this egregious tax. All that Congress needs to do is ignore the pressure, ignore the deadline, and let these twin evils die. Can they do it? We will see how principled the GOP really is.

Walt Bussey, a retired computer systems analyst, blogs at The Lemming Watch.