Senate votes to repeal ethanol tax credits

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 U.S. government borrowing.

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

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 credit, which would expire at the end of the year anyway, unless Congress renews it.

The measure passed Thursday would end the tax credit immediately. It would also repeal a 54-cent-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 credit 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 like the ethanol tax credit. The ethanol tax credit is part of a package of dozens of business and individual tax breaks that Congress usually renews each year. Thursday's vote could spell trouble for some of the others.

Thirty-three Republicans joined 40 Democrats in voting to eliminate the ethanol tax credit.

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."

The Senate had rejected an identical amendment on Tuesday, 59-40, though some senators opposed it on procedural grounds that were later addressed.

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 (136 billion liters) of biofuels into auto fuel by 2022. They say it drives up corn prices, mainly for animal feed.

"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, a Democrat.

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. Sen. Tom Harkin, a farm state Democrat, said there should be a transition period rather than an abrupt elimination of the tax credit.