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Senate Rejects Coburn Bid to Eliminate Ethanol Tax Break, Tariff

The U.S. Senate will vote tomorrow on another bid to end a tax break that supports ethanol production.

The vote will come two days after the Senate voted 59-40 against advancing a similar proposal. The Senate will also decide at 2 p.m. in Washington on a proposal from SenatorJohn McCain, an Arizona Republican, that would prevent federal spending on certain ethanol-related pumps and storage facilities.

The opponents of ethanol benefits, led by Republican Senator Tom Coburn of Oklahoma and Democratic Senator Dianne Feinstein of California, have been rallying a coalition that includes chicken breeders, environmental groups and anti- spending advocates. Their setback yesterday came after Democratic Senate leaders urged their members to vote against the proposal as a means of asserting their control of the chamber’s proceedings, in protest of the way Coburn forced that vote.

“It became clear that today’s vote was so wrapped up in process that the outcome would not reflect the high level of support for the amendment’s substance,” Feinstein said in a statement after yesterday’s vote.

Feinstein also said that Majority Leader Harry Reid of Nevada has said that the Senate will vote on a farm-state alternative from Democrat Amy Klobuchar of Minnesota and Republican John Thune of South Dakota.

‘Transition Period’

The Klobuchar-Thune proposal would end the current credit on July 1 and in its place create a “safeguard” that would exist if the price of oil drops below $90 a barrel. It would also extend tax breaks for fuel stations, small ethanol producers and cellulosic biofuels.

“We’re in a transition period” on biofuels policy, said former Representative Larry Combest, a Texas Republican and founder of Combest, Sell and Associates, a Washington lobbying firm that represents agricultural interests. “Some groups that have been traditional supporters of renewable fuels are looking for other ways the money can be expended. Even people who are strong supporters are asking: Where can we go from here?”

Coburn’s proposal for an immediate end to the ethanol tax credit and tariff was offered as an amendment to an economic development bill, which isn’t likely to become law. Members on both sides of the vote viewed it as a test that would shape the ethanol industry’s future and gauge Senate Republicans’ willingness to eliminate targeted tax breaks.

Republican Division

The ethanol vote is highlighting a schism within the Republican Party between Coburn and tax-cut advocates such as 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 group said a vote for Coburn’s proposal would represent a pledge violation if lawmakers didn’t also support a tax-cut amendment, such as the estate tax repeal proposed by Republican Senator Jim DeMint of South Carolina.

Coburn painted the ethanol vote as a test of the pledge, which labels the elimination of a tax break as a tax increase.

“It’s not a good position to put yourself in when you say here’s a tax expenditure that nobody needs and yet we have to give somebody else a tax cut to take away this because this is tax spending, it’s not a tax cut,” he said.

Coburn and 33 other Republicans were joined by six members of the Democratic caucus in voting to advance his measure yesterday. Republican senators who have signed the tax reform group’s pledge and voted with Coburn included Lamar Alexander of Tennessee, Mike Crapo of Idaho, Jeff Sessions of Alabama and Rand Paul of Kentucky.

Unique Situation

It’s unclear how many of those senators view ethanol as a unique situation or whether some would join Coburn in his support for curtailing dozens of similar spending programs embedded in the tax code as part of a budget agreement that also reduces spending.

“You can call that program an expenditure, but I reject in general the idea that a tax deduction is an expenditure,” Sessions said. “I don’t believe in that.”

Coburn faced objections from Norquist supporters as well as from Democratic leaders irritated at the parliamentary maneuver Coburn employed to force a vote. The Obama administration also opposes repealing the tax credit, White House spokesman Jay Carney said yesterday.

The coalition opposing the ethanol aid included the animal agriculture industry that relies on corn for food, environmentalists who question the benefits of corn-based ethanol, and anti-spending advocates who view the program as wasteful.

‘Triple Crown’

“No other product I know of has the triple crown of government support that corn ethanol has in this country,” Feinstein said, referring to the tax credit, the tariff and a mandate on ethanol use.

The blocking of Coburn’s amendment doesn’t necessarily mean that the 45-cent-a-gallon ethanol tax credit will be extended beyond its scheduled expiration at the end of the year.

Asked at a press conference yesterday whether he supported the Coburn language and would consider bringing it up in the House, Speaker John Boehner didn’t 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,” Boehner, an 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.”

The bill to which Coburn proposed attaching his amendment 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

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