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.
