Ethanol Business As Usual

Copyright 1998 Investor's Business Daily
May 14, 1998

House Speaker Newt Gingrich gave hope to every special-interest group last week when he effectively blocked what would have been the death of ethanol subsidies. So much for a change in the direction of government.

Gingrich could have let this egregious example of corporate welfare die, as it would have under House plans. But the speaker left a key ethanol foe off the conference committee that will iron out differences between House and Senate transportation bills.

So the fix is in. House Ways and Means Committee Chairman Bill Archer, R-Texas, a hard-line ethanol opponent, is out. In his stead will be Rep. Jim Nussle, R-Iowa, who comes from a state that grows a lot of corn, ethanol's main ingredient.

Without Archer, who would have pushed for the House version that lets the subsidy lapse in 2000, final legislation will be a highway bill that likely has the Senate's wishes to extend the subsidy through 2007.

As a result, ethanol makers will keep getting their 54 cent-a-gallon tax credit at the expense of taxpayers.

And it's a big hit. From 1979 to 1995, the subsidy cost taxpayers $7.1 billion, Archer says; it will cost them an additional $2.4 billion between 1997 and 2000.

That's a lot of favors for ethanol makers, who turn out a product that cannot make a profit without government help.

The common- sense question, then, is: Why is the federal government continuing to subsidize an industry at the expense of taxpayers?

The answer is simple: special-interest politics. Ethanol makers, primarily Archer-Daniels-Midland Co., which reportedly reaps half the federal ethanol largess, gives millions to candidates who support ethanol subsidies.

ADM seems to get results from its ''investments'' in politicians. The federal government has propped up ethanol, and its fuel product, gasohol, since the 1970s. It has done so even though gasohol is an inefficient fuel source that is no kinder to the environment than gasoline.

Author James Bovard says ethanol production, which might ''actually be a net destroyer of energy,'' costs taxpayers $30 for each dollar of makers' profits.

Not surprisingly, the cost of making a gallon of ethanol is higher than the price it can bring on the retail market.

So Washington is once again backing a product that would otherwise fail. Congress' choosing winners and losers is not a duty found in the Constitution. But that doesn't seem to matter when political gain is in the balance.

Political gain also helps explain the government's duplicity. It routinely fines and harasses businesses for environmental violations. But it's all for subsidizing a fuel that, according to the California Air Resources Board, makes the air dirtier if it contains 10% or more ethanol. The typical gasohol mixture is nine parts gasoline to one part ethanol.

Yet in spite of its many flaws, the ethanol industry survives. Give thanks to Gingrich, who surrendered to the Midwest farm lobby.

For someone who has long condemned the welfare state, Gingrich's stance on ethanol is curious. Could the reason be that corn-rich Iowa holds the first contest in the race for the White House?

And give a lifetime achievement award to former Sen. Bob Dole, R-Kan. Hailing from a land of ethanol plants and countless corn farms, he's been ethanol's supporter in chief. And his coziness with ADM is almost legendary.

Of course, Democrats aren't blameless either. They controlled the House for all but four years of the ethanol tax break's existence.

But Republicans took control of Congress on pledges to cut government and reduce the influence of special interests.

The survival of ethanol tax breaks puts the lie to those pledges. So does the pork-filled highway bill, the yearly $65 billion or so in other corporate subsidies, and, ultimately, the planned $334 billion rise in federal spending over the next five years.

Comments on this posting?

Click here to post a public comment on the Trash Talk Bulletin Board.

Click here to send a private comment to the Junkman.

Material presented on this home page constitutes opinion of the author.
Copyright © 1998 Steven J. Milloy. All rights reserved. Site developed and hosted by WestLake Solutions, Inc.