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McCAIN OFFERS AMENDMENT TO ELIMINATE ETHANOL TAX SUBSIDY EXTENSION
March 11, 1998
WASHINGTON, D.C. -- U.S. Senator John McCain (R-AZ) today offered an amendment that would save taxpayers $3.8 billion by eliminating an additional seven years of tax credits for ethanol and methanol producers."With today's booming economy, it's hard to justify continued government subsidies for programs that haven't lived up to expectations after more than two decades of government assistance," McCain said in prepared remarks on the Senate floor. "It's even harder when those subsidies are given to an industry that makes over $30 million a year producing ethanol."
The amendment strikes the Finance Committee amendment that extends for an additional seven years the tax credits for ethanol and methanol producers. The Congressional Budget Office has estimated lost revenues total $3.8 billion. McCain's amendment would have allowed the existing subsidies to continue through the year 2000 but would have eliminated the seven-year extension.
Current law provides tax credits for ethanol producers which are estimated to cost the Treasury $770 million a year in lost revenue, and the Congressional Research Service estimates losses will increase to $1 billion by the year 2000. These tax credits effectively increase the tax burden on other businesses and individual taxpayers.
(Full text of McCain's statement is attached -- 4 pages total)
STATEMENT OF SENATOR JOHN MCCAIN ON AMENDMENT TO PROHIBIT EXTENSION OF ETHANOL SUBSIDIES
Mr. President, I offer an amendment today to prevent an extension of inequitable government subsidies for the ethanol industry that would cost the American taxpayers $3.8 billion.
The amendment is very simple. It negates the effect of the Finance Committee amendment (No. 1759) to the ISTEA legislation which would extend for an additional seven years the tax credits for ethanol and methanol producers. The value of these ethanol subsidies is estimated by the Congressional Budget Office at $3.8 billion in lost revenues.
Mr. President, enough is enough. The American taxpayers have subsidized the ethanol industry, with guaranteed loans and tax credits, for more than 20 years. Since 1980, government subsidies for ethanol have totaled more than $10 billion. The Finance Committee amendment to ISTEA, if not stricken, would give another $3.2 billion in tax breaks to ethanol producers.
Current law provides tax credits for ethanol producers which are estimated to cost the Treasury $770 million a year in lost revenue, and the Congressional Research Service estimates that loss may increase to $1 billion by the year 2000. These huge tax credits effectively increase the tax burden on other businesses and individual taxpayers.
The current tax subsidies for ethanol are scheduled to expire at the end of 2000. This amendment does not change current law; it allows the existing generous subsidies to continue until the turn of the century. The amendment merely ensures that the subsidies do expire and are not extended for another 6 years.
Mr. President, let me just take a moment and try to explain why we have such generous ethanol subsidies in law today. The rationale for ethanol subsidies has changed over the years, but unfortunately, ethanol has never lived up to the claims of any of its diverse proponents.
In the late 1970s, during the energy crisis, ethanol was supposed to help the U.S. lessen its reliance on oil. But ethanol use never took off, even when gasoline prices were highest and lines were longest.
Then, in the early 1980s, ethanol subsidies were used to prop up America's struggling corn farmers. Unfortunately, the usual "trickle down" effect of agricultural subsidies is clearly evident. Beef and dairy farmers, for example, have to pay a higher price for feed corn, which is then passed on in the form of higher prices for meat and milk. The average consumer ends up paying the cost of ethanol subsidies in the grocery store.
By the late 1980s, ethanol became the environmentally correct alternative fuel. Unfortunately, the Department of Energy has provided statistics showing that it takes more energy to produce a gallon of ethanol than the amount of energy that gallon of ethanol contains. In addition, the Congressional Research Service, the Congressional Budget Office, and the Department of Energy all acknowledge that the environmental benefits of ethanol use, at least in terms of smog reduction, are yet unproven.
In addition, ethanol is an inefficient, expensive fuel. Just look at the 3- to 5-cent-per-gallon increase in gasoline prices during the winter months in the Washington, D.C. area when ethanol is required to be added to the fuel.
Finally, let me quote Stephen Moore, of the CATO Institute, who puts it very succinctly in a recent paper:
"...[V]irtually every independent assessment--by the U.S. Department of Agriculture, the General Accounting Office, the Congressional Budget Office, NBC News and several academic journals--has concluded that ethanol subsidies have been a costly boondoggle with almost no public benefit."
So why do we continue to subsidize the ethanol industry? I think James Bovard of the CATO Institute put it best in a 1995 policy paper:
"...[O]ne would be hard-pressed to find another industry as artificially sustained as the ethanol industry. The economics of ethanol are such that, for the industry to survive at all, massive trade protection, tax loopholes, contrived mandates for use, and production subsidies are vitally necessary. Only by spooking the public with bogey-men such as foreign oil sheiks, toxic air pollution, and the threatened disappearance of the American farmer can attention be deflected from the real costs of the ethanol house of cards that consumes over a billion dollars annually."
Mr. President, last year, when the Congress was considering the Taxpayer Relief Act, the House Ways and Means Committee took a bold step and included in its version of the bill a phase-out of ethanol subsidies. In the report accompanying the bill, the House Committee stated:
"[Ethanol tax subsidies] were assumed to be temporary measures that would allow these fuels to become economical without permanent Federal subsidies. Nearly 20 years have passed since that enactment, and neither the projected prices of oil nor the ability of ethanol to be a viable fuel without Federal subsidies has been realized. The Committee determined, therefore, that enactment of an orderly termination of this Federal subsidy program is appropriate at this time."
The Senate Finance Committee took the opposite view, but fortunately, reason prevailed and the conference agreement on the Taxpayer Relief Bill made no change to current law, allowing this needless subsidy program to expire at the turn of the century.
Mr. President, we should end these subsidies. If ever there was a prime example of corporate pork, the unnecessary, inequitable ethanol subsidy program is it.
Mr. President, with today's booming economy, it is hard to justify continued government subsidies for programs that have not lived up to expectations after more than two decades of government assistance. It is even harder when those subsidies are given to an industry that makes over $30 million a year producing ethanol.
Current law terminates ethanol subsidies after the year 2000. This amendment would avoid the $3.8 billion cost of extending the ethanol subsidies through 2006. I urge my colleagues to oppose changing current law and adopt my amendment to prohibit extention of the ethanol subsidies.