Senate Dems use GOP ethanol votes to push for tax revenues in deficit deal

Several Senate Democrats are using GOP support for killing ethanol subsidies as a political weapon against Republican leaders’ resistance to including increased tax revenues in a broad deficit-cutting deal.

Thirty-four Senate Republicans — including Senate Minority Leader Mitch McConnell (R-Ky.) — this month voted to quickly end the multibillion-dollar ethanol blenders’ credit, albeit as part of economic development legislation that was subsequently derailed.

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Sen. Charles Schumer (D-N.Y.), a top strategist for Senate Democrats, on Wednesday said this should open the door for ending tax breaks as part of the high-stakes deal that the White House and lawmakers are negotiating around raising the debt ceiling.

“It makes no sense for Leader McConnell to, on the one hand, say that he agrees that ethanol subsidies are wasteful but then say — just to stick to ideological, way-out-there principle that we can’t eliminate that subsidy in the debt-limit deal,” said Schumer, the chairman of the Senate Democratic Policy Committee, at a press conference in the Capitol.

Democrats are calling for several revenue measures in the deficit deal, including repeal of billions of dollars' worth of oil industry tax breaks.

“If you begin to look at ethanol and you begin to look at oil subsidies, you can see a way in which you begin to ultimately end the tax breaks that Americans shouldn’t bear any more and that we can put toward deficit reduction,” said Sen. Robert Menendez (D-N.J.).

McConnell has rebuffed calls to address tax revenues in the deficit talks, preferring a singular focus on spending.

McConnell’s office, ahead of Wednesday’s Democratic press conference, circulated the minority leader’s mid-June comments about reforming tax subsidies, in which he said the issue should instead be addressed in a broader — and separate — tax-reform package.

“The difficulty of doing tax reform in the context of the Biden discussions is pretty obvious. It's a big, comprehensive subject,” McConnell said June 14, referring to talks between Vice President Biden and Capitol Hill lawmakers on the debt ceiling, which President Obama has since joined directly. McConnell said tax subsidies should be addressed in a broad tax-reform bill.

“You'd look at preferences and subsidies and rates and all of that together. I would be surprised, frankly, if we get into the tax issue in the ... Biden discussions leading to a vote on the debt ceiling,” McConnell said.

But Sen. John Cornyn (R-Texas), who heads the Senate Republicans’ political campaign arm, told reporters Wednesday that he would be open to killing the ethanol subsidy in a debt-reduction plan. “I wouldn’t be opposed to that,” he said.

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Cornyn, however, then highlighted the GOP push to win major spending cuts, and expressed doubt that tax revenues could be addressed in the deficit talks. “I just don’t know if there is enough time to do it in a responsible way,” he said.   

Sen. Lamar Alexander (R-Tenn.) has called for examining a range of "unwarranted" energy-related tax breaks, but has similarly expressed doubt about tackling the issue in the deficit talks.

But Schumer sought to emphasize that some Republicans have acknowledged the need to address revenues in a wider budget package, citing the bipartisan “Gang of Six” senators — which Sen. Tom Coburn (R-Okla.) later abandoned — that explored a mix of spending cuts and tax revenues.

He cast McConnell’s position as fealty to Americans for Tax Reform President Grover Norquist, who argues that any reductions in tax credits or deductions should be matched with cutting tax rates.

“Leader McConnell has decided to walk out on the same limb as Grover Norquist, he is being adamant that we should figure out a way to achieve $4 trillion dollars in debt reduction without including any revenues at all,” Schumer said.

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The Democrats’ use of the ethanol vote as a gambit in the deficit talks comes amid ongoing negotiations about a compromise on repealing the ethanol blenders’ credit.

Sens. Dianne Feinstein (D-Calif.), Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) are in talks about a compromise plan that would quickly end the blenders’ credit — which is slated to expire at year’s end — and apply the savings to deficit reduction and other ethanol industry support.

Feinstein and Coburn have led the charge to simply kill the roughly $6 billion annual blenders’ tax credit, and the ethanol import tariff.

The Minnesota and South Dakota senators — who are allies of ethanol producers — oppose plans to kill subsidies without providing other industry assistance, such as extending separate tax credits for producing next-wave, cellulosic ethanol.

While Feinstein suggested Tuesday that a deal was at hand, she told reporters Wednesday that talks remain ongoing. “What I thought was going to be done isn’t done,” she said in the Capitol.

Thune, in the late morning Wednesday, said that all issues are not yet resolved. “The credit will go away ... but there is an issue that we still need to get settled on,” Thune said in the Capitol. He didn’t provide specifics.

Klobuchar also noted Wednesday that negotiations are ongoing.

“Every month [the ethanol blenders’ credit continues] is $400 million. You want to get it done as soon as possible so you can put more into the debt reduction, basically, and so that’s why there is an incentive for everyone to come together,” Klobuchar said.