Norquist gets ethanol wrong

Yesterday, the Senate approved an amendment which would eliminate subsidies to the ethanol industry and eliminate the import tax on foreign ethanol.

The 73-27 vote combined 40 Democrats with 33 Republicans for a super-majority, but the measure still faces substantial hurdles as it is attached to a bill which may never become law. Also, President Obama has stated objections to eliminating the ethanol subsidy and it's not at all clear that the final bill which includes the amendment would pass with a veto-proof majority.

The most interesting fireworks were, surprisingly, not between Corn Belt state parasites and the rest of the nation's taxpayers. Instead it's the fight between Senator Tom Coburn (R-OK) who wants to repeal these subsidies and the anti-tax crusader Grover Norquist.

In short, Norquist argues that repealing the subsidy -- which is in the form of a tax credit -- represents a tax hike and therefore a violation of the Americans for Tax Reform Pledge to eschew any tax increases.

Coburn argues that the subsidy is simply a transfer of money from taxpayers to a politically-favored industry. Therefore repealing the subsidy is not a tax increase and has the added benefit of removing government from picking winners and losers among industries.

Norquist is a powerful figure in Washington, D.C. Tom Coburn seems intent on taking him down a notch. That is a questionable goal given Norquist's proven effectiveness in keeping politicians in line on tax votes. Coburn is right to let ethanol "stand on its own two feet" (if it can), but the internecine fight between him and Norquist is a bad idea for all who want limited, low-tax government.

Norquist, who understands politics as well as anyone, knows that his point will be picked up by Democrats such as the eely Chuck Schumer who is already arguing that by repealing the ethanol subsidy Republicans are demonstrating that they're actually not against tax hikes. Schumer hopes to use this vote to argue against items in the tax code which benefit oil companies despite the fact that oil companies do not get similar industry-tailored subsidies to those that the ethanol industry gets. Schumer's argument is unlikely to find acceptance outside of the likes of the Huffington Post and MSNBC. Nevertheless, his rhetoric underscores Norquist's political quandary.

Rational Americans know that removing a tax credit for a politically-favored industry is not a tax increase but rather a tax cut for the rest of us, and further that favoring a particular industry is not an appropriate role for government. That's especially the case as voters wake up to the critical situation with our national debt and deficit. Even the most ardent tax cutters should be allowed to recognize that tax credits for some simply mean higher taxes, either now or later, for the rest of us.

One important clarification: Grover Norquist is not against eliminating the ethanol subsidy; he was and is for it. What he argued is that government will simply spend the amount that it doesn't deliver through the subsidy and that therefore repealing the subsidy is a tax increase. Therefore, in order to stay true to the Pledge's call that any legislation that increases some tax(es) must decrease other tax(es) at least as much, Norquist was supporting combining the subsidy elimination with the passage of an amendment by Senator Jim DeMint (R-SC) which would have simultaneously eliminated estate taxes. When the DeMint Amendment was unable to get a vote, Norquist felt he had no choice but to oppose the stand-alone repeal of the ethanol subsidy.

I'm all for the tax Pledge which Norquist's Americans for Tax Reform gets (usually Republican) politicians to sign. And I'm hesitant to second-guess a guy as smart as Grover Norquist. But I wonder if the usually savvy Norquist is making a mistake on this one, allowing the Pledge to be used to handcuff America to bad economic policy.

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