Ethanol Tax Break Safe -- For Now

Written By Brianna Panzica

Posted June 15, 2011

Despite legislation on a tax break and tariff in support of ethanol production, the Senate voted yesterday on a proposal to override that before the end-of-the-year expiration date.

The proposal didn’t pass, but it certainly said something about the Republicans in Senate.

They’re having trouble agreeing.

Tuesday’s voting results were 59-40, the majority for keeping the tax break at least until its expiration date.

And yet of the 40 that voted to end the tax break, 34 were Republicans.

Let’s back up a bit.

GOP Senator Grover Norquist is president of the Americans for Tax Reforms, a group aiming to avoid tax increases, and 40 of the 47 Republican Senators signed his pledge for no tax increases.

That includes an elimination of tax breaks.

Which means that at the very least, 27 Republicans who signed this pledge are now breaking it to vote for a removal of the tax break.

Oklahoma Senator Tom Coburn, leader of the proposal against the tax break, is said to have forced the vote to occur earlier than expected.

This may be one of the main reasons so many others voted against him.

It looks like ethanol production subsidies could hold out for the rest of the year – at least until the expiration date – pending another potential vote.

After the voting results were in, Green Plains Renewable Energy, Inc (NASDAQ: GPRE), a company that has control over some ethanol production, rose 4.7%, according to Bloomberg.

But the odds of these tax breaks being extended aren’t looking quite as good.

Senator John Thune of South Dakota told The New York Times he thinks it may be a good idea to eventually end the tax break, but he doesn’t think it’s fair to do so now when so many ethanol producers are depending the later expiration date.

The subsidies also allow more ethanol to be produced, putting it in competition with foreign oil imports. If these subsidies stopped, the country may become even more reliant on foreign oil.

Opponents to the tax break, however, believe that ending it would really aid government deficit.

In 2007, legislation was passed to require oil companies to produce 36 billion gallons of biofuels by 2022, which would include ethanol.

As companies are required by law to do this, some believe the tax breaks are only adding to government debt, and unnecessarily so.

And as more corn is being used for ethanol production, corn prices are actually going up, causing some of the inflation in food prices.

It’s a sticky situation: minimize deficit or minimize foreign oil dependence?

No one can seem to agree.

That’s all for now,


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