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How to remove $5 billion from the federal deficit in one fell swoop? Eliminate the $5 billion-a-year subsidy given to oil refiners for blending ethanol into gasoline.
The Senate voted Thursday to do just that...
...even though the amendment is attached to a bill that probably won’t pass, the 73-27 vote sends a message that many Democrats and Republicans are behind an idea supported by an odd coalition that ranges from Tea Partyers to the Sierra Club.
Thirty-three Republicans joined 40 Democrats in voting to eliminate the subsidy.
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 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, D-Md.
In addition, ethanol usage may affect other areas of the federal budget. The rise in food prices during
the 2007–2008 period, some of which was attributable to ethanol, boosted the consumer price index, which is used to calculate annual cost-of-living adjustments in benefits for such programs as Social Security, military and civilian retirement, and Supplemental Security Income
The economic viability of producing corn ethanol— whether manufacturers can show a profit—is intrinsically linked to the price of gasoline (for which ethanol is a substitute) and to the price that ethanol producers pay for corn. The Congressional Budget Office’s (CBO’s) analysis of current technologies and prices suggests that, without subsidies for producing ethanol, the “break-even ratio” of the price per gallon of retail gasoline to the price per bushel of corn is currently about 0.9.1 In other words, when the price of a gallon of gasoline is more than 90 percent of the price of a bushel of corn, it is profitable to produce ethanol. At that point, revenues from the sale of ethanol would be sufficient to cover the fixed and variable costs of producing it.
Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at the grocery store, ranging from corn syrup sweeteners found in soft drinks to meat, dairy, and poultry products. In addition, the demand for corn may help push up the prices of other commodities, such as soybeans. (Farmers that increase the number of acres they plant with corn to meet rising demand will most likely plant fewer acres with other crops.) From April 2007 to April 2008, the increasing
demand for corn to produce ethanol contributed, in CBO’s estimation, between 0.5 and 0.8 percentage points
to the 5.1 percent increase in the price of food...