Jackson Jambalaya

I slammed Senators Wicker and Cochran yesterday for voting against Senator Coburn's bill to eliminate the subsidy and tariff for ethanol. It turned out there was more to the story, which should come as no surprise to anyone. Any discussion of this vote must start with the Internal Revenue Code. The IRS states on its website:

"Sections 6426(a) and (c) allow a blender of a biodiesel (including renewable diesel) mixture to claim a $1.00-per-gallon credit against its tax liability under § 4081 (relating to the tax imposed on taxable fuel). The blender may claim any excess as a payment under § 6427(e) or as a refundable income tax credit under § 34. Similar rules apply to blenders of alternative fuel mixtures (§ 6426(e)) and to persons that sell or use alternative fuel as a fuel in a motor vehicle or a motorboat and in aviation (§ 6426(d)), except that the credit amount is $0.50 per gallon and the credit for alternative fuel is taken against the claimant’s tax liability under § 4041 (relating to the tax imposed on diesel fuel and alternative fuel). As an alternative to the payments and credits allowed under §§ 6426, 6427, and 34, a blender of a biodiesel (including renewable diesel) mixture may claim a nonrefundable income tax credit under § 40A (see Section 3 of this notice for additional information).

The Code provisions that authorize these credits and payments expired for sales and uses after December 31, 2009, but were reinstated by the Act for sales and uses during 2010 and 2011."

Translation: the ethanol subsidy is slated to expire at the end of this year. Mr. Coburn's bill would have moved up the elimination date from the end of the year to July 1:

"(2) Section 6427(e)(6)(A) of such Code is amended by striking ‘‘December 31, 2011’’ and inserting ‘‘the later of June 30, 2011, or the date of the enactment the Ethanol Subsidy and Tariff Repeal Act’’.

Did I screw up? Yes, I did. I made the mistake of trusting what I read in the media. National Review reported "The Senate voted down an amendment today that would have done away with $6 billion in tax subsidies for ethanol producers." The Wall Street Journal did not mention the movement of the expiration date from December to July in the bill in its coverage of the vote but for a vague quote by one Senator about the subsidy expiring at the end of the year. The reader would not have known Senator Coburn's bill accelerated the expiration date. Only Bloomberg and CNBC mentioned these relevant facts. However, conservative columnists such as Debra Saunders at Town Hall and James Antle, III at the American Spectator failed to mention the acceleration clause.

Pete Perry, Chairman of the Central Committee of the Hinds County Republican Party, called me yesterday to say Senator Wicker did not vote for the bill as the subsidy was already slated to expire at the end of the year and several companies had informed him it would complicate their tax planning as the expiration date was already codified. Mr. Perry also said contrary to what some may believe, Senator Wicker gets more support from the chicken, beef, and similar producers than he does from the farmers. Those groups all hate the ethanol mandates and subsidies as it drives up their feed prices.


So yes, I dropped the ball a little yesterday. Normally I would have read the bill and the code but instead just reacted to what I read in a couple of news stories and op-ed pieces and wrote a blog post. I can understand why Senator Wicker voted against Coburn's amendment and also why conservative Senators voted for it: do you end it now or in six months is the question. There is a movement by Senator Grassley and other corn lobby allies to pass a bill that will not end the subsidies but instead reduce them. In other words, don't kill it, just let it live until it can be revived to its former state. It remains to be seen how our two Senators will vote on his alternative if it comes to the floor for a vote. Stay tuned.

One additional note: Grover Norquist and his Americans for Tax Reform want to keep the ethanol subsidy because, are you ready for this?, they consider removing the subsidy to be a tax hike!!! So ending corporate welfare, which the ethanol tariffs and subsidies are, is now called a tax hike? This reminds me of the Democrats calling increases in Medicare spending "cuts" during their Mediscare campaign. Unbelievable.