Ethanol vote: First step toward extinction for federal tax subsidies?
Sen. Tom Coburn's bid to end tax subsidies for ethanol failed. But the measure got 34 GOP votes, suggesting that many Republicans are open to eliminating tax breaks to trim the deficit.
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At the 11th hour, he was joined by other powerful conservative groups, including the Club for Growth, Freedom Works, and Koch Industries, who urged conservatives to vote to end tax breaks for ethanol, even without offsets elsewhere in the tax code.Skip to next paragraph
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“Taxpayers should be encouraged that Republican senators overwhelmingly rejected the ludicrous argument that eliminating tax earmarks is a tax increase,” Coburn said in his statement. “I’m hopeful that, sooner rather than later, debates like this will lead to the kind of deficit reduction agreement this country desperately needs.”
Indeed, the ethanol debate split conservative groups that have stood shoulder to shoulder on other issues involving taxes and big government. “You’ve got a real ideological divide among people who agree on 98 percent of the world,” says Michael Franc, vice president for government affairs at the Heritage Foundation, a conservative think tank.
That could help negotiations to increase debt limit, which Republicans say they will agree to only if there are spending cuts at least equal to the size of the debt-limit increase. “Eventually there’s going to have to be a deal struck that includes revenue increases as well as spending cuts,” says Donald Marron, director of the Urban-Brookings Tax Policy Center. “The path of least resistance on revenue increases will be reducing tax expenditures.”
ATR’s tax policy director, Ryan Ellis, warns that the ethanol vote is just the beginning of a push by Coburn and others for billions in tax increases. “This is a warmup,” he says. “Ultimately, Senator Coburn says he we need massive tax increases in order to get a deal" on raising the debt limit.
He suggests that if Coburn succeeds, other more popular tax expenditures could be next in line for elimination. “At any point, if you bring up an unpopular tax credit you have to ask yourself: What can you say about this that you also can’t say about your mortgage deduction?” he adds.
But other groups have rallied to Coburn's side. In a June 13 letter, Koch Industries President Philip Ellender urged ending ethanol subsidies – despite the fact that his company produces and blends ethanol.
The subsidies “distort economic signals about price and demand and create inefficiencies that divert resources from productive activities to politically favored ones,” the letter said.
FreedomWorks, which helped launch the tea party movement, favors eliminating tax credits in favor of a flat tax. The ethanol tax credit is “horrible policy,” says Wayne Brough, chief economist at FreedomWorks. “Members of both parties are probably equally guilty of using the tax code to put things in for their favorite industries. Ultimately, our goal is to get a flat tax in place that puts all this debate off the table.”