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The Public Policy
Has Subsidy-Scrapping Time Arrived?
As the man from Exxon said, repeal them for everybody.
One day last week Senate Democrats engaged in one of their favorite indoor sports: beating up on oil companies. They convened a kangaroo court (aka a hearing) to give tongue-lashings to the CEOs of major oil companies, just to make sure American motorists know it is this greedy bunch that is responsible for soaring gasoline prices.
“Take away their subsidies,” they cried. The media missed the irony in the sharp inquisition by Sen. Jay Rockefeller (D-WV), heir to a large Standard Oil fortune (of which Exxon is a modern descendant).
One of the accused said taking away the subsidies was okay if all government subsidies met the same fate. In calling for reform of the tax system, many Republicans and some Democrats propose lowering corporate tax rates sharply in exchange for eliminating “loopholes” (special tax deductions, credits, and direct subsidies). This was echoed by Exxon CEO Rex Tillerson at the hearing: “If you want to repeal it [a subsidy] repeal it for everybody.” The tax reform act signed by President Reagan in 1986 represented a similar effort — successful at the time — but gradually, as taxes increased again, new loopholes were added to counter the effect of these.
American taxpayers would save hundreds of billions of dollars if subsidies were eliminated.
There would be howls of protest. Some would come from elected representatives of both parties from affected areas. “You can’t do this,” they will insist, for it would (a) cost thousands of jobs; (b) ruin the economy of ________; (c) endanger national security; (d) increase global warming. Reformers will have to steel themselves for this onslaught if they are to stay the course. If they do, there will be dividends.
Take, as an example, the huge subsidies of ethanol. Billed in the 1970s as an economic alternative to gasoline with the promise of greater miles per gallon and cleaner air, ethanol has been subsidized ever since. Environmentalists and more than a few Democratic lawmakers liked ethanol because it played to their anti-fossil-fuel bias. Creeping subsidies are the result. Today corn growers and ethanol producers collectively get $6 billion a year from the government.
After 40 years, it is a failure in every respect save one: corn growers and ethanol producers are doing nicely. The producers get a 45-cents-a-gallon tax break and growers get direct subsidies which they would like increased by this year’s agriculture bill.
A 2007 energy bill required the annual blending of 14 billion gallons of ethanol with gasoline by this year, increasing to 36 billion gallons in 2022.
This is madness when one considers the negatives:
• Cost of food. As ever more corn growers ship their corn to ethanol producers, there is less for feeding livestock. Result: higher prices for beef and pork. Also, some growers of other produce are switching to corn because it is more profitable.
• Poorer mileage. A National Center for Policy Analysis study concluded that a Chevrolet Tahoe SUV running on gasoline would get 21 mpg, but only 15 mpg when using a blend of 85 percent gasoline and 15 percent ethanol. Fifteen percent is the level the EPA requires for 2001 and newer model cars. Older cars could sustain engine damage with ethanol at that level. Does this mean gas stations must have two sets of pumps? An amendment by Rep. John Sullivan (R-OK) to block the EPA from raising the ethanol level from 10 to 15 percent passed the House 285-136 and awaits Senate action — if any.
• Ethanol is not usable as aviation fuel.
• Environmental “wash.” The amounts of water and fuel required to produce ethanol are about a “wash” with the decrease in carbon emissions in cars using the ethanol blend.
• Shipping costs. Ethanol-gasoline blends cannot go through pipelines for chemical reasons, so ethanol is transported by rail or truck. Most of it is produced in the Midwest so must be blended where it is distributed, increasing costs.
So, let’s begin the reform process by eliminating the subsidies for ethanol, then we can move on to sugar, oil, even electric automobiles.
About the Author
Peter Hannaford was closely associated for a number of years with the late President Reagan, beginning in the California Governor’s office. His latest book is Presidential Retreats.
Letter to the Editor View all comments (49) | Leave a comment
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Dee See| 5.18.11 @ 6:28AM
---Yes, certainly.
And let's start with the
awesome TAX FREE status subsidies of the
ultra-rich, EUGENICS driving,
culture subverting,
sovereignty sabotaging 'benny violent'
'chair-IT-Abel' foundations and their
hundreds, indeed, thousands of spin-offs.
With their UNDENIABLE domination and
control of ALLLL policy and direction coupled
with their ON RECORD, core agenda Social Darwinism ---
occult character and unelected,
unaccountable, unchallenged 'masters'
----this is a matter of the gravest possible
'Church and Sate seperation' concern.
In their nation, culture and soul destroying
effect they eclipse anything from the darkest
days of old Catholic church history.
Clearly poisonous.
Truly, truly SINISTER.
PCC| 5.18.11 @ 9:40AM
Excellent point, DC.
Because I'm a "Small Potato" (as we say in my part of the world if your net worth is less than US$10 million) my motivation to give to charities has never been driven by tax considerations, but simply based on supporting on good causes. I think it's a canard that Americans would substantially reduce their private donations to worthy charities if the tax deduction were removed, but it might flush out many of the NGO parasites.
FakeEagle| 5.18.11 @ 7:40AM
I would agree with you, Peter, except that I'm convinced that if the government stopped paying billions in subsidies, we would never see a cent of it back. They would likely find some program(s) even more repulsive than subsidies to throw the money at. They just can't stop wasting money, or worse, spending like mad on controversial liberal social programming projects.
John Navratil| 5.18.11 @ 9:56AM
FakeEagle,
Well if they can't stop spending the money, perhaps they could just shovel it my way. I'm quite sure I could do a better job of saving the planet. I'd buy a smaller jet than Al Gore's ;)
bobu| 5.18.11 @ 7:42AM
Count me in as all for eliminating subsidies, with the explicit inclusion of EVERY industry receiving them. These sleazy exceptions for favored parties are a major reason the U.S.A. is broke.
Pecos Pete| 5.18.11 @ 8:45AM
Revoke/repeal the income tax ... then subsidies based on calculations of income will be eliminated. Replace the income tax with a flat tax or a national sales tax ... and then we still have to limit Congress' ability to spend and to legislate waivers.
I can foresee Congress legislating a waiver for GE (or name your favorite company/industry ... like windmills, etc.) in that they are a presumed national security necessity and thus should only pay 1/2 or none of the sales tax/flat tax.
To eliminate all subsidies requires that Congress and the president be honorable, ethical and bound by the Constitution. Ain't gonna happen.
John Navratil| 5.18.11 @ 9:57AM
Pecos Pete,
Agreed, but lets make sure this is a tax based on consumption and not a VAT.
Pecos Pete| 5.18.11 @ 11:08AM
Agreed.
Old Soldier| 5.18.11 @ 8:45AM
Sure eliminate them all - including the fiddiling with personal income taxes (interest deductions, "green" energy nonsense, etc...).
Then slash corporate and personal tax rates. Canada's corporate rate is about to drop from 16 to 15%. The effective rate in East Coast states is around 40%. We are arguing about breaks that make a percent or two difference.
Petronius| 5.18.11 @ 8:54AM
Bob Dole and Kit Bond looted $26,000,000,000 from our postal retirement fund and gave it to Archer Daniels Midland to force ethanol into our gas tanks. Result? MPG dropped. Fuel prices and taxes rose because we must buy more of it. I want My money, My horsepower, and My Freedom back.
FakeEagle| 5.18.11 @ 12:58PM
...and my fuel mileage....
Timothy L. Pennell| 5.18.11 @ 9:00AM
You wanna get rid of these Subsidies? Make the Iowa Caucus, LAST.
John Navratil| 5.18.11 @ 10:04AM
Mr. Hannaford,
Amplifying your single point on aviation fuel: Ethanol can never be an aviation fuel. It isn't about the engine and fuel system, but rather that Ethanol is hydrophylic. Fuel resting comfortably in Houston on a muggy August day with a 100-degree temperature and 98% humidity has a tendency for the water to drop out of solution when that same gallon is lifted to fifteen thousand feet where the outside temperature is likely to be fifty degrees, or more, cooler.
Fairbanks99| 5.18.11 @ 8:11PM
I've been buying ethanol free gas for about three months now since I heard of the Pure-Gas.org website. It lists stations by state that are known to have the real thing. I was filling my tank with some better mileage pure gas one day, and talked to the guy at the next pump. He had 5 five gallon containers. I asked him if it was for a boat, and he said for a plane - a Cessna 172. He told me the only ethanol free gas available at the airport is 100LL, which is very expensive. 87 octane is sold - with ethanol it it!
Since finding these stations, my mileage has come up by about 2 mpg, and the water i was seeing in my engine has disappeared. I also have a smooth idle at stoplights, which I did not have before.
Ethanol is an evil that we need to put an end to.
John Navratil| 5.19.11 @ 8:58AM
Fairbanks99,
Yes I've heard of pure-gas.org. Not much in Texas and absolutely nothing within 300 miles of Houston. That fellow's Cessna 172 had to have a mogas STC (supplemental type certificate) which requires ethanol free gas. However, even that is getting less valuable as ethanol free gasoline is being banned in some states (aviation fuel has an exemption from ethanol, but that doesn't seem to matter).
87 octane avgas disappeared years ago and avgas blended with ethanol is a no-no. Perhaps this airport is selling mogas for experimental aircraft. I might put E10 mogas it in an ultra-light with an engine (Rotax, e.g.) designed for it, but in nothing I could climb very high in.
Growth Energy | 5.18.11 @ 10:28AM
Peter
As a representative of the ethanol trade group Growth Energy I would like to highlight some important points that you seemingly overlook.
We currently send over $400 billion overseas ever year to pay for our nation’s addiction to foreign oil, and are at the whims of the extremely volatile oil market.
Home-grown, renewable ethanol is the single-best alternative to oil we have. Grain ethanol is already here and commercially viable. It is replacing foreign oil today, and by using higher blends of ethanol, like E30 or E85, it can replace more.
Ethanol is the only progress this nation has made in reducing our dependence on foreign oil in more than 40 years. Blending ethanol into our fuel reduces gas prices by as much as 35 cents a gallon, displaces millions of barrels of imported oil every year and removes harmful emissions from the air.
Furthermore, it's entirely untrue to say that ethanol is an energy "wash." Ethanol is more energy efficient to produce than gasoline. A recent USDA study showed that for every 1 BTU required for ethanol production, 2.3 BTUs of energy are produced.
I would encourage you to check your facts at www.growthenergy.org before publishing your next opinion.
Thank you
John Navratil| 5.18.11 @ 11:01AM
Growth Energy,
Hardly and independent group, are you?
Your CEO is a past president of the National Farmers Union and agricultural policy advisor to Tom Daschle.
Your COO is a former lobbyist and Iowa congressman.
You other board members are ethanol producers and Gen. Wesley Clark.
Assuming you can be dispassionate on this issue, you might wish to provide a link to that recent study refuting Mr. Hannford's point. Also, could you address Mr. Hannaford's points on the external costs such as higher beef prices and food riots in other parts of the world. You also excluded the tremendous water cost in producing ETOH. We can all be profitable if we don't have to account for out losses.
While you may be correct that Ethanol is the only progress made in forty years in reducing foreign oil imports, that hardly makes it the best. Domestic oil production could certainly increased. And to those saying that drilling today won't help the price at the pump today, I say but it will tomorrow and were we to have drilled yesterday, when the same argument was made, we would have it today to affect those prices.
Byron| 5.18.11 @ 11:22AM
It's also irritating that top soil is considered a renewable resource, that it can last forever at current production rates. Like global warming, the fundamental assumptions aren't even true.
Dc| 5.18.11 @ 11:38AM
John N is correct, and the Growth Energy/Ethanol Lobby apologist is just another welfare addict whose industry exists only because of government funneling taxpayer money to it in perpetuity. If fuel ethanol were so wonderful, it wouldn't need to be subsidized. ExxonMobil and many others would own huge cornfields in Illinois and Iowa. But they don't, do they? Why? Because it is both destructive to the performance of fuel, and economically non-viable without the welfare subsidy.
Or how about this--make the use of fuel ethanol voluntary. That way the idiots in the Midwest who think this is such a wonderful idea can pay for it themselves. (Actually, they already do, with the highest gas prices in the nation--wonder why? Could it be the cost of transporting ethanol?). The rest of us want out. Get your effing corn out of our gasoline. While you're at it, do us a favor and help get your filthy corrupt Illinois export, currently pretending to be president, out of D.C. and back to the Chicago cesspool where he can roll around in his own filth like the pig that he is.
SpiralArchitect| 5.18.11 @ 12:15PM
What a laugh -
Ethanol is the only progress this nation has made in reducing our dependence on foreign oil in more than 40 years.
That does not, by any measure, mean it is the only way to make progress. Use domestic oil. That was not somehting that I stayed up late at night trying to figure out. Easy solution to your statement, easy.
Drilling today would indeed bring the fuel prices down from our artificially high non supply based fuel costs.
If the Gov (even just the POTUS) announced he was going to allow drilling and other means of oil recovery in this nation we would see prices drop within a few business days. Speculators are not the reason costs are high. Speculators would bring the prices down ( this would happen after the POTUS announcement ) as they would speculate against the high cost of fuel. This would reduce the price at the pump, not increase the price.
Al Adab| 5.18.11 @ 1:14PM
Ask your mechanic what the stuff does to your engine. Ask the small engine goy about you lawnmower, chainsaw, weed trimmer, etc.
Al Adab| 5.18.11 @ 1:58PM
OOPS guy not goy although that is funny.
Drunken Sailor| 5.18.11 @ 3:16PM
Well actually Goy could have been correct as well.
"Goy (Hebrew: גוי, regular plural goyim גוים or גויים) is a Hebrew biblical term for "nation". By Roman times it had also acquired the meaning of "non-Jew".[1] The latter is also its meaning in Yiddish."
Al Adab| 5.18.11 @ 5:19PM
Only if your mechanic goes to synagogue.
FakeEagle| 5.18.11 @ 1:01PM
End ethanal pollution now!
Nunya| 5.18.11 @ 1:11PM
Growth Energy (GE): If ethanol is so good, then let it stand on its own. You get no subsidies, and then let's see how well you do.
It's not that I'm against ethanol per se, it's that I'm against federal subsidies that are based on politics. Farm subsidies are the same, and should be pulled.
Fairbanks99@hotmail.com| 5.18.11 @ 8:15PM
We can "end our addiction on foreign oil" by drilling and refining our own. Those who don't want to use oil and welcome to defect to Cuba.
Fairbanks99@hotmail.com| 5.18.11 @ 8:18PM
"are" welcome to defect...
Chef Schnauzer| 5.19.11 @ 8:45AM
If your comments rang true - they do not you are a liar - there would be private companies dotting the globe standing on their own two free market feet. Slither away.
john| 5.22.11 @ 2:38PM
Since you know so much about ethanol, maybe you can explain why there is a 54 cent tariff per gallon on Brazilian ethanol, which cost way less to make since they make it from cane sugar.
Al Adab| 5.18.11 @ 11:19AM
Agreed. End them for everyone. That includes no only business subsidies, but funding for all the private agencies doing "government work" like ACORN, SEIU, LaRaza, Urban League etc. Why do we think they deserve any taxpayer money? Ethanol subsidy? GM? When will we make and end?
Richard| 5.18.11 @ 12:09PM
But now there is a special interest that will fight to keep its government largesse--and who can blame them since their jobs depend upon it.
Pete| 5.18.11 @ 12:17PM
Eliminate all subsidies and let's see if ethanol rises to the top...don't hold your breath.
What would really be funny is if, as part of the recent lip service to reducing government spending, subsidies for either ethanol or wind/solar had to go. Watching those groups fight it out would merit a 6pack and a bowl of cheetos.
fundamentalist| 5.18.11 @ 1:01PM
Subsidies are direct payments by the government to specific businesses. Tax breaks are not subsidies.
All companies can deduct the cost of doing business from their taxable revenues, not just oil companies.
I'm not aware of any subsidies except for farming.
Al Adab| 5.18.11 @ 1:12PM
Ethanol production at 50 cents per gallon. Tax breaks as you note are indirect. Does it not seem however, that if industry needs tax incentives, then the tax structure itself is regressive and counter-productive?
JimH| 5.18.11 @ 2:10PM
Let’s be clear on the terminology. A subsidy is when the government gives you money. A tax deduction or credit is not a subsidy unless you presume that the government has a right to all of your money and what it allows you to keep is a gift from them. That said, in addition to subsidies deductions and credits which target specific industries are wrong. The income tax ought not to be used as an instrument of industrial or social policy. I won’t get into whether corporations should be paying income tax to begin with, I will say whatever tax system we ought to be simple, as flat as possible and used solely for raising revenue.
dc| 5.18.11 @ 2:12PM
Small f: a tax credit may or may not be a subsidy, it certainly isn't a direct one. The subsidy here is the regulatory mandate that x% of gasoline contain ethanol. Government's artificial creation of a market where none (or a much, much smaller one) would exist without the government's mandate is a subsidy. Even the one-worlder clowns at the WTO and any international lawyer worth his salt will tell you that. So don't try to be clever here--you can legitimately argue that a tax credit (the government giving back money taken from the taxpayer or taxpaying entity) is not a subsidy, because the original source of the money was the taxpayer. You can't legitimately argue that where the government forces third parties to buy the taxpayer's product, that no subsidy exists. And I haven't even gotten into the tariffs on imported ethanol, which make foreign ethanol (much cheaper to produce in places like Brazil) artificially expensive compared to distilled corn from the Midwest. That's yet another subsidy. Eliminate them all, for oil companies (though most of those are tax credits), exporters (Ex-Im Bank), eco-communist agitators, ethanol whores, all of them.
How about taking all that money and spending it instead on giving the fighting men and women of the U.S. military an across-the-board, permanent pay raise of 25%, at every rank below General. Some things--few, but some--are worth spending money on. Fattening the wallets of Dear Leader Maobama's welfare addicts in the Midwest doesn't make the cut.
Redstateboy| 5.18.11 @ 1:06PM
TAS had a fantastic explination of Ethanol Months back called: "Corny Capitalism" - you can still read it I'm sure searching Archives and once read - no one will be able to convince you of the benefits of Ethanol. And........... "Rep. John Sullivan (R-OK) to block the EPA from raising the ethanol level from 10 to 15 percent passed the House 285-136" My Question??? Who were these 136 Morons!!! Are we This Governed by imbicles?!??!!
Nunya| 5.18.11 @ 1:14PM
Red, yes. We are governed by imbeciles.
Richard Baker| 5.18.11 @ 2:10PM
End all subsidies and get the government out of the gimme game. If it can't stand on it's own, whatever the industry, then let it go. Enough with treating the dollar as Monopoly money.
w| 5.18.11 @ 4:04PM
Agree, paying people for non functioning farms is arguable an insane concept.
David| 5.18.11 @ 7:37PM
Wow. I can't believe this - I agree with the Right Wing. Miracles do occur, people.
I was an early supporter of ethanol but now am a dread enemy. (See, Lefties CAN learn.) So, yes, end the ethanol subsidy. It is failed public policy.
Yes - end the subsidies for sugar, cotton, corn, oil, and those for every other greedy business sector that has both feet in the public trough.
Here's a bold thought - The Right and the Left moving on the issues we CAN agree on instead of pontificate on the ones we can't.
You know we'll never agree on abortion but can we agree on making adoptions easier, more transparent, and less expensive?
Try out the thought. I know that Saint Ronald of Reagan inveighed against compromise. Fine. Don't compromise but do try to find a way to do the people's business.
Quartermaster| 5.18.11 @ 9:40PM
The left has routinely prevented the people's business from being done, but has gotten the left's business done, which a much different thing. That's why we are in debt to the tune of 14 trillion with little hope of t ever being paid off and the country set free.
Just a note, both parties are left of center. The Reps are as much to blame for the situation as the Dems are. The Reps don't have the spine to face the facts and deal with the problem, and the Dems are certifiable and I don't expect them to even try. Constitutional government is a concept that is lost in the mists of pre-1860 history.
Replica Handbags&wallet; | 5.18.11 @ 9:21PM
This is really the perfect piece of content! We now have book marked it and sent it out to virtually all of my buddies mainly because I know they should be intrigued, thank you very much!
Chef Schnauzer| 5.19.11 @ 8:41AM
Excellent, thank you for great information presented very well. Thank you.
Andy Anderson| 5.19.11 @ 4:09PM
There are some good subsidies to consider repealing in the Farm land. The $4B subsidy for crop loss insurance comes to mind. But the $6B subsidy to ethanol industry is the difference between making and losing money for most of the ethanol suppliers. This 49 cent/gallon subsidy is shrinking as gas prices increase, of course and may someday be eliminated, but let's not be so quick. The 400,000 individuals working the ethanol industry pay taxes, about $5B in income and payroll taxes. Maybe the industry is ready to stand on it's two feet, maybe not, but why risk it? Addressing the "negatives" is easy. 1) Ethanol is made from "feed" corn. Only 70% of the corn kernel is used for ethanol, the remaining 30% is returned to the livestock industry as feed. The yield on feed corn per acre has more than doubled over the 20 years that ethanol has begun to be introduced as a corn market and the amount of corn acres forced to be fallow by Government programs (paid by taxpayers) has been eliminated. There is now more animal feed available now than ever before in addition to the ethanol. High prices today are a function of recent bad harvests in the rest of world (farmers are making lot of money this year selling feed grains and products overseas, see the U.S. BOP sheets for details).
2. The efficiency of most cars today is not affected one iota by the low ethanol blends. There are exceptions, but there are also exceptions where the ethanol blends have increased gas mileage. Ethanol does have less energy per gallon, but it has higher octane equivalence. For cars designed to use it, the mileage issue pretty much goes away. There are also new engine designs that "diesel" the alcohol and get roughly the same mileage improvement that standard dieseling gets. Don't shut off technology before it gets started. We've come a long way already, but there's plenty of improvement on the way.
3) Yes, the infrastructure, including transportation, refining, distribution for ethanol is not completely up yet. It took awhile for unleaded gas, as well. It will be worse to accommodate electric. Custom blended pumps are already showing up in the Midwest, new pipe designs are being tested, and the refineries are adjusting. 4) This was not about environmental perfection, though the environmental benefits are real. This is about home grown energy, the kind of energy that has helped allow our foreign fuel imports to be relatively flat over the last 10 years. The 14 Billion gallons of ethanol, missing from the fuel equation, would have to be made up from more imports. We are already pulling in the lion's share of oil exports from Canada and Mexico, our nearest and most reliable sources. They don't have much more to send us. Any fresh imports will come from the more distant and unreliable sources. We will compete for those sources with China and India and the oil prices, already bad, will get worse. I'd much rather produce the liquid fuel here, with American workers, generating American tax dollars and American business. I can't answer if the enzyme based ethanol production will scale up successfully. If it doesn't, the ethanol production plans much beyond 18B gallons won't happen. But the 14B gallons we currently produce are too valuable to risk by eliminating the $6B subsidy.
anon| 5.20.11 @ 2:38AM
leticia olaia morales of 15501 pasadena ave #8 tustin ca 92780 submitted fake documents and paid 5000 dollars to obtain a US tourist visa. she also submitted fake employment records to obtain a work visa. she is now applying for citizenship.
anon| 5.20.11 @ 2:38AM
leticia olaia morales of 15501 pasadena ave #8 tustin ca 92780 submitted fake documents and paid 5000 dollars to obtain a US tourist visa. she also submitted fake employment records to obtain a work visa. she is now applying for citizenship.