Chicken Breeders Face Tax-Cut Hawks in Senate Ethanol Vote

Photographer: LM Otero/AP

A vote in the U.S. Senate today will pit corn growers against chicken farmers, anti-tax purists against anti-spending advocates, and Democrats and Republicans against members of their own parties. Close

A vote in the U.S. Senate today will pit corn growers against chicken farmers, anti-tax... Read More

Close
Open
Photographer: LM Otero/AP

A vote in the U.S. Senate today will pit corn growers against chicken farmers, anti-tax purists against anti-spending advocates, and Democrats and Republicans against members of their own parties.

A vote in the U.S. Senate today is pitting corn growers against chicken farmers, anti-tax purists against anti-spending advocates, and Democrats and Republicans against members of their own parties.

Senator Tom Coburn’s attempt to eliminate tax breaks and tariffs that benefit the ethanol industry will place his colleagues in the middle of a political fight over corn-based energy that has fermented for years. Coburn is bringing another quarrel to a boil -- his feud with Grover Norquist, president of Americans for Tax Reform, a Washington group that has persuaded 40 of 47 Republican senators to sign its no-tax-increase pledge.

The legislation on the Senate floor, an economic development bill, is unlikely to become law. Further, Republican opposition to eliminating a tax cut and Democratic irritation with the procedural maneuver Coburn used to force a vote could make it difficult to win the 60 votes needed to overcome a parliamentary obstacle. The vote is set to occur at 2:15 p.m.

The Obama administration opposes Coburn’s proposal, White House press secretary Jay Carney told reporters today.

“We are for reforming it but we are not for repealing it,” he said.

Eliminating Tax Breaks

Lobbyists and members of Congress are watching the fate of Coburn’s amendment as a signal for whether the Oklahoma Republican can persuade members of his own party to declare that eliminating a tax break isn’t always equivalent to a tax increase. If Coburn succeeds, it would be easier to attack other tax breaks in a similar way or pare such breaks to reduce the federal budget deficit.

“If there are Republicans who break with Grover Norquist’s position, I think that’s an important thing,” said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington. “I think it signals a willingness on their part to have the fight with him over whether every tax expenditure is a legitimate reduction in effective tax rate, or whether there are some that should be regarded the way they regard spending programs.”

Norquist’s group considers voting for Coburn’s amendment a pledge violation unless senators also vote for a proposal by Senator Jim DeMint, a South Carolina Republican, which would eliminate the ethanol usage mandate and repeal the estate tax. It was unclear yesterday whether the Senate would vote on DeMint’s amendment.

“If that’s going to be their interpretation, it’s going to make that pledge pretty meaningless, I think, in the future,” said Senator John Thune, a South Dakota Republican who opposes Coburn’s amendment. “That would mean I could go down and vote for something, as long as I offer another amendment over here.”

Net Tax Increase

Ryan Ellis, the tax policy director at Americans for Tax Reform, said that although the group opposes the ethanol tax credit, it also rejects Coburn’s amendment as written because it would be a net tax increase.

The second-ranking Republican in the Senate, Jon Kyl of Arizona, said yesterday he doesn’t consider his support for Coburn’s amendment as a violation of his no-tax-increase pledge.

“It’s bad policy, regardless of how much money is involved,” Kyl said.

Coburn’s proposal, which he has pitched as a “big step toward restoring fiscal sanity,” would eliminate the ethanol tax credit of 45 cents a gallon as well as a tariff on imported ethanol. The tax credit, estimated by the congressional Joint Committee on Taxation to cost the Treasury $4.9 billion for 2011, expires at the end of the year. Industry groups and farm- state senators such as Republican Charles Grassley of Iowa have supported proposals to change the credit so its value depends on the price of oil.

Coburn worked with Democrats last year on a fiscal commission set up by President Barack Obama and in an informal Senate group this year to find ways to reduce the federal budget deficit. He has endorsed an approach to deficit reduction that would include cuts in spending and tax breaks as a way to garner bipartisan support.

Coburn Allies

By choosing ethanol as the first test case for his challenge to Norquist, Coburn stepped into a policy fight where he has a range of allies. They include environmental groups that question the benefits of corn-based ethanol, small-government groups that call the tax credit wasteful, and animal producers that compete for corn.

“Symbolically and psychologically, this vote is very important, because I think it might be the death knell” for the ethanol aid, said Mary Colville, director of government relations at the National Chicken Council. “We’re hoping.”

Asked at a press conference today whether he supports the Coburn language and would consider bringing it up in the House of Representatives, Speaker John Boehner did not rule out the idea.

“Clearly there’s a big debate here on Capitol Hill about what to do with ethanol, and I think that the ethanol credit is due to expire at the end of the year,” the Ohio Republican told reporters. “Some members will want to take action earlier. We’re going to consider the views of all of our members. But clearly, I think changes are on the way.”

‘A Bit Optimistic’

Senator Mike Johanns of Nebraska, who was agriculture secretary under President George W. Bush and who opposes Coburn’s proposal as in his view it would end the ethanol credit too abruptly, said he considered that “it was always a bit optimistic to think that there were 60 votes there.”

“Over the past decade, really, the United States Congress has sent a signal to the ethanol industry: grow, develop, expand, build plants,” he said. “And many did.”

If Coburn’s measure wins enough support on a bill that isn’t advancing, it becomes a revenue-raising provision that can appear in other bills, said Hazen Marshall, a former Republican Senate aide who is a lobbyist at The Nickles Group in Washington.

“If it shows that it has a lot of political support, then it ends up on more and more lists,” said Marshall, whose clients include Anadarko Petroleum Corp. (APC) and Exxon Mobil Corp. (XOM)

Whether Coburn’s amendment succeeds or not, the vote will send a signal about how Congress will examine tax expenditures and energy policy, said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington group supporting Coburn that is opposed to what it calls wasteful subsidies.

“This is not the end of the game, no matter what,” he said. “It’s not the end of the game on tax reform. It’s not the end of the game on ethanol.”

The economic development bill is S. 782.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.