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Senate supports some ethanol subsidies, not others

WASHINGTON — The Senate voted Thursday to repeal tax credits for producing ethanol, a vote that budget cutters hope will demonstrate a growing appetite in Congress to end special-interest tax breaks to help reduce government borrowing.

The Senate voted 73-27 to repeal the $5 billion annual subsidies, just two days after rejecting an identical measure. The tax credits provide 45 cents a gallon to oil refiners who mix gasoline with ethanol, a renewable, liquid fuel additive that comes mainly from U.S. corn.

The measure will now be added to a bill renewing a federal economic development program. The prospects for the overall bill are uncertain, but Thursday's vote clearly endangers the ethanol tax credits, which would expire at the end of the year anyway, unless Congress renews them.

The measure passed Thursday would end the tax credits immediately. It would also repeal a 54-cents-a-gallon tariff on imported ethanol, which restricts imports, mainly from Brazil.

"The best way for ethanol to survive is to stand on its own two feet, without spending something we don't have to get something we're going to have anyway," said Sen. Tom Coburn, R-Okla.

In a sign that some ethanol subsidies are likely to endure, the Senate also voted 59-41 to reject a measure that would have eliminated a government program that supports the distribution of ethanol. The House had passed a similar measure earlier in the day, by a vote of 283-128, adding it to an agriculture spending bill.

The debate played out as the White House and congressional leaders continued to negotiate spending cuts to help reign in government red ink. Thursday's vote will almost certainly make repealing the ethanol tax credits part of those discussions.

The federal government, which borrows about 40 cents of every dollar it spends, has already hit the legal borrowing limit of $14.3 trillion. Treasury Secretary Timothy Geithner has warned Congress that the U.S. risks an unprecedented default on Treasury bonds if the borrowing limit isn't increased by Aug. 2. However, a growing number of lawmakers say they won't vote to increase the borrowing limit without substantial deficit reduction.

Many Republicans have ruled out tax increases, though some have said they would support ending narrowly tailored tax breaks such as the ethanol tax credits.

The Obama administration opposed both ethanol measures.

"The administration supports efforts currently under way in the Senate to reform and modernize tax incentives and other programs that support biofuels," Agriculture Secretary Tom Vilsack said in a statement. "However, today's amendments are not reforms and are ill advised. They could lead to job loss and pull the rug out from under industry, which will lead to less choice for consumers and greater dependence on foreign oil."

Critics say ethanol subsidies are no longer needed for an industry that is already supported by a mandate from Congress that requires refiners to blend 36 billion gallons of biofuels into auto fuel by 2022. They also say the subsidies drive up corn prices.

"A tax break from ethanol is a gift to the oil companies and grain producers, a gift that actually harms American consumers and our environment," said Sen. Ben Cardin, D-Md.

Supporters of continued federal spending for ethanol argue it is a leading source of alternative fuel that helps reduce U.S. dependence on foreign oil.

Senate supports some ethanol subsidies, not others 06/16/11 [Last modified: Thursday, June 16, 2011 9:49pm]
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