Commentary

Push Ethanol Off the Dole

By Stephen Moore
July 10, 1997

Rep. Bill Archer, R-Tex., is a heroic politician. He is heroic not just because he has constructed a commendable tax cut bill, despite the tight budget constraints that Bill Clinton and Republican leaders forced upon him. He is also heroic for his courage in taking on a foe that has intimidated most of his Capitol Hill colleagues: Washington’s parasitic ethanol lobby.

Ethanol is a corn-based gasoline substitute. Gasoline is a creation of the marketplace, but ethanol is a creation of Washington, D.C. The ethanol program originated in the late 1970s during the energy crisis. A quarter-century later, there is no energy crisis and virtually every independent assessment —by the U.S. Department of Agriculture, the General Accounting Office, the Congressional Budget Office, NBC News and several academic journals — has concluded that ethanol subsidies have been a costly boondoggle with almost no public benefit.

Yet even after ethanol has siphoned $7 billion from the federal treasury, the mighty ethanol subsidies still flow. Why? Ethanol’s survival has nothing to do with economics or the environment and everything to do with political muscle. Almost 70 percent of ethanol is produced by America’s premier agri-giant, Archer Daniels Midland. ADM, the self-proclaimed “supermarket to the world,” has spent a small fortune on farming Capitol Hill over the past 20 years. Through programs like ethanol and sugar price supports, it has reaped a profitable harvest from taxpayers. In fact, an estimated 40 percent of ADM’s profits come from government-subsidized products.

Ethanol currently receives two subsidies: a tax credit for companies that blend ethanol and an exemption from federal excise taxes at the gas pump. Rep. Archer wants to close the loopholes and save taxpayers a half billion dollars a year. Those loopholes were created on the grounds that ethanol use would help reduce pollution and U.S. dependence on foreign oil. But an ethanol study the General Accounting Office released this spring should be required reading for every member of Congress.

On the alleged environmental benefits from ethanol, the GAO says, “Available evidence suggests that the ethanol program has little effect on the environment.” Getting rid of ethanol subsidies would “slightly increase carbon monoxide emissions … but slightly reduce emissions of ozone precursors.”

On reducing alleged global warming, the GAO says that the “change in greenhouse gas emissions that would occur if ethanol fuel were not subsidized is likely to be minimal.”

On reducing petroleum imports, the GAO concludes, “Ethanol tax incentives have not significantly enhanced U.S. energy security.” Ethanol reduces U.S. gasoline consumption by “less than one percent.”

Those conclusions aren’t at all new. In fact, 10 years ago a U.S. Department of Agriculture study reported that the $500 million subsidy for ethanol “represents an inefficient use of our nation’s resources.” It concluded, “When all economic costs and benefits are tallied, an ethanol subsidy program is not cost-effective.” That Reagan administration study was such an embarrassment that, as a result of pressure from the industry, the USDA now dutifully sings the praises of the ethanol life-support system.

In helping rid taxpayers of blatant corporate welfare, Archer is fighting a lonely battle. The Clinton administration is a staunch defender of ethanol. In June 1994 Clinton imposed new ethanol mandates on gasoline, relying on fatuous arguments that the corn-based fuel “would create thousands of new jobs for the future” and protect “our environment, our public health and our farmers.” The New York Times immediately exposed the political payoff, noting that the mandate would “take money from consumers and taxpayers and hand it over to Archer Daniels Midland.” Why would the administration want to do that? Investigative reporter James Bovard found that ADM and related interests gave $50,000 to the Democrats days before the 1992 election and some $300,000 in soft-money contributions to the Democratic Party in the first 18 months of the Clinton administration.

On balance, though, Republicans are even fiercer ethanol loyalists. They, too, get boatloads of ADM-related money. More important, the GOP sees the ethanol program as a vital subsidy for their farm-state constituents. Ethanol has become Republican pork. Newt Gingrich was brutally honest when he said recently: “We probably won’t end the ethanol program in this Congress.”

But you can’t blame Bill Archer for trying. After all, there are three strikes against ethanol this year. First, the program has lost its long-time patron saint, Bob Dole — a.k.a. Senator Ethanol. Second, the conviction of ADM officials for price-fixing has tarnished the conglomerate’s image in Washington. Third, the new GAO report exposes the ethanol program as perhaps the least justified tax loophole remaining in our entire 3,000-page tax code.

Unfortunately — for Bill Archer and for American taxpayers — all too often in Washington, even with three strikes, you’re still not out.

Stephen Moore is director of fiscal policy studies at the Cato Institute.