Extending Ethanol Tax Credit Makes Sense

The ethanol tax credit, known commonly by its congressionally-bestowed acronym, "VEETC" (the "Volumetric Ethanol Excise Tax Credit" for those who delight in impressing cocktail-party acquaintances with their knowledge of trivia), is the tax credit many conservatives and liberals alike love to hate. Both sides, however, would be well-advised to push aside ideologically-based peeves for the time being, and support extension of the credit beyond its scheduled December 31st expiration.

Outside those states boasting heavy corn production, which is the most common product source for the biofuel ethanol, few Americans -- including the millions of motorists who daily benefit from inclusion of ethanol in the gasoline that fuels their vehicles -- VEETC is essentially unknown. This understandable lack of public awareness accounts for much of the trouble proponents of the tax credit are encountering in their efforts to convince Congress to include an extension in some piece of legislation that will make its way to President Obama's desk in the final weeks of this 111 Congress.

Another reason the ethanol tax credit has had a rough ride this year, lies in its complexity; which extends far deeper than just the awkwardness of its moniker. As is clear from a reading of the July 2010 Congressional Budget Office (CBO) study, "Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals," calculating the "costs" of tax credits such as VEETC, and weighing them against the energy and environmental "benefits," is a daunting and not necessarily objective exercise, even for energy experts.

While it is relatively easy to pick apart the information in the CBO study, as some conservative groups already have done, such an exercise is somewhat unfair. There is, of course, a philosophical argument to be made that any tax credit will to some degree skew market forces. However, to single out the tax credit available to blenders of gasoline (and indirectly to producers of ethanol and other biofuels), while ignoring other, far larger tax incentives, is disingenuous. As Bob Dinneen, head of the Renewable Fuels Association (RFA) noted in a guest article in the July 29th Washington Post, "calling for an end to tax credits for ethanol while ignoring the billions of dollars in subsidies for Big Oil is as inequitable as it is shortsighted."

It is relevant also that the tax subsidies the fossil fuels industry enjoys are written permanently into the federal tax code, and therefore do not have to be defended and justified periodically like VEETC.

As Dinneen also pointed out in his opinion piece, production of ethanol made possible at least in part by VEETC, has in fact generated billions more in additional tax revenues than dollars extended through the tax credit program (a net surplus of tax dollars totaling $3.0 billion last year alone). Fiscal hawks should be cheering passage of legislation extending VEETC, not pouting over its possible resuscitation.

These arguments don't even touch the very practical benefits accruing to the economy generally by employment opportunities in the biofuels sector (with 112,000 jobs directly linked to the fate of the tax credit, according to the RFA).

Were incumbent members of the Congress facing a political climate less volatile -- and an economy less sluggish -- than that in which they currently find themselves, the debate over extending VEETC likely would have been resolved favorably many months ago. Even Washington's most well-known tax watchdog group, American for Tax Reform, cautions members of Congress against voting to repeal VEETC (to do so would amount to a "corporate tax increase" in the organization's view).

There is always plenty of time to argue the philosophical pros and cons of the myriad elements of federal tax policy; and that's a healthy and necessary debate. But it needs to be a fair, objective and comprehensive debate; not one singling out for criticism or elimination one tax credit program like VEETC, that demonstrably is both a benefit to private industry as well as a net contributor of jobs and tax revenues.