WATCHING GOVERNMENT

Patrick Crow
Washington, D.C.
[email protected]

The U.S. subsidy for corn-derived ethanol as a gasoline additive, which has been a controversial subject in Congress for years, is in the spotlight again.

Rep. Bill Archer (R-Tex.), chairman of the tax-writing House ways and means committee, thinks the subsidy is a boondoggle whose time has passed.

He has drafted a tax package that would reduce the 54¢/gal ethanol tax credit by 3¢ now and eliminate it in the year 2000.

Archer's bill also contained a penalty on "excess" ethanol production, higher tax credits for small ethanol producers, and the repeal of subsidies for ethyl tertiary butyl ether, which competes with methyl tertiary butyl ether as a gasoline additive.

The ethanol provisions in the bill would save $4.1 billion during the next decade for the federal government.

A recent report by the General Accounting Office, a Congressional watchdog agency, provided Archer with vital ammunition. It declared the ethanol tax incentive has done little to improve the environment or reduce oil imports (OGJ, Mar. 24, 1997, p. 22).

Archer said, "If there were ever an anachronistic provision in the tax code, it is this one. It makes absolutely no sense. It should be removed."

First vote

Archer maintained that corn production should be subject to the free market, and the highest and best use of corn production is to feed human beings. About 5% of U.S. corn production is used for ethanol.

The ways and means committee recently accepted Archer's ethanol phase-out. It voted 21-17 to reject an amendment by Reps. Jim Nussle (R-Iowa) and John Tanner (D-Tenn.) to retain the tax credit.

Nussle will appeal to the House rules committee, which determines how legislation will be considered on the floor, and probably has a good chance of getting a separate floor vote on ethanol.

The rules committee often reflects the wishes of the House speaker, and Speaker Newt Gingrich (R-Ga.) has pledged, "The House will not kill ethanol." Two years ago, Gingrich thwarted another Archer attempt to kill the ethanol tax credit.

Agriculture interests argue Congress passed a law in 1990 guaranteeing the tax credit until 2000, and that commitment should be honored.

Before a floor vote, supporters of the credit must convince congressmen that the credit mainly benefits mom-and-pop farmers, and not agricultural giants such as Archer Daniels Midland-although the latter is closer to the truth.

More than 100 House members have gone on record in favor of keeping the credit. That's less than half of the majority needed to win, but a good start for the opposition.

The future

A group of farm-state senators have said they will battle the repeal measure, should it make it to that body.

And if both houses approve the bill, the Clinton administration has declared its opposition. Treasury Sec. Robert Rubin recently said, "The administration continues to support the ethanol credits."

Archer may have the upper hand now, but seems unlikely to prevail.

Some observers think that he doesn't expect to win anyway-that he's just keeping the issue hot for another try in 2000.