Cutting the ethanol tax credit a first move in reducing debt

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On April 18, the credit-rating service Standard & Poor’s downgraded the U.S. credit outlook from stable to negative. The Dow Jones Industrial Average finished the day down 140 points.

Hopefully, it will put pressure on President Obama and the Congress to wake up and do something serious — not just the typical Washington watered-down approach — about our nation’s looming debt crisis.

It is definitely on the public’s mind. A story in the Yahoo! News section, reporting on the Standard & Poor’s action, drew 1,620 comments from readers in the first five hours it was posted. I scanned the comments, and here’s one of my favorites from “Iowa’s Rogue”:

“Finally, something in the news that may, just may, make the Government pay attention!!! We can only hope!

“It will be the same old, same old, though. Every item that might get a reduction will be touted as ‘only an extremely small amount’ that doesn’t really affect the overall deficit… Doesn’t anyone realize that if we start adding up the millions, one at a time, they eventually become billions, and then many saved billions become trillions, etc? If people ran their household budgets like the government, we’d all be in bankruptcy — opps, government is nearly there.”

I agree with “Iowa’s Rogue.” Let’s get started finding those millions and billions.

We can start with the ethanol tax credit. According to the Government Accountability Office, the tax credit cost the government $5.4 billion last year in foregone revenues. It’s not a huge amount by government standards, but enough of those $5 billion increments will eventually add up to a trillion.

The tax credit is a 45-cent-per-gallon subsidy for blending ethanol into gasoline. In other words, there is a 45-cent-per-gallon exemption from the Federal Motor Fuel Excise Tax for the people who blend ethanol with gasoline. It’s often referred to as a blender’s credit.

The tax credit will continue through at least the end of this year.

While it was once laudable to promote ethanol as a means of reducing our country’s reliance on foreign oil, the incentives, which began during the Bush Administration, have had unintended consequences.

The most obvious consequence on the livestock industry has been higher feed prices. The corn price has skyrocketed in recent years, and most other feed commodities have followed suit.

The Western United Dairymen, a group representing much of the dairy production in California, has been outspoken on this issue, calling the ethanol incentives “flawed policy.”

“These subsidies must stop immediately,” Western United Dairymen CEO Michael Marsh said last December. “These subsidies have driven up the cost of all feed grains and, due to inefficiencies in the process, will not move the U.S. along the road to energy independence. It is time to move on before this government policy wreaks additional irreparable damage to the U.S. animal agricultural sector.”

Not only that, food prices in the grocery store are going up, putting further pressure on consumers. Everyone knows what energy prices are doing: They are going through the roof, regardless of whether ethanol is there to offset tiny amounts of foreign oil or not.

But the national debt is the overriding concern. All sectors of the economy, including agriculture, must step up to the plate and make sacrifices. And, agriculture has a perfect place to start.


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CF    
Wis  |  May, 06, 2011 at 02:43 PM

At its peak the subsidies for ethanol was over $1.70 per bushel of corn. This includes state and federal.


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