Federal ethanol subsidy survives in revised tax bill Corn lobby, others win fight to save aid for alcohol fuel


WASHINGTON -- In the tax legislation he submitted early this month, Rep. Bill Archer, the chairman of the Ways and Means Committee, proposed raising more than $4 billion in the next decade by trimming and eventually abolishing the federal tax subsidy for ethanol.

Archer, a Texas Republican, even managed to win his committee's approval of the measure. But then it ran into snags.

House Speaker Newt Gingrich spread the word that he would use his authority to have the changes in the tax treatment of

ethanol deleted or at least significantly modified before the tax bill went before the full House of Representatives.

Then, in the tax bill it approved Thursday night, the Senate Finance Committee voted not only to retain the tax break for ethanol but to continue it for at least 10 more years.

By week's end it was clear that the ethanol subsidy had survived another challenge.

Hardly anyone in political circles was surprised. Ethanol, an alcohol fuel made from corn and usually mixed with gasoline, has led a charmed political life for years.

This is one of the issues on which lobbying has been most intense as lawmakers have begun processing the first substantial tax cut in 16 years through the legislative mill.

The committees completed their work last week, and their separate versions of the tax legislation are scheduled to be debated on the House and Senate floors this week.

The bill in the House is almost certain to be approved without substantial changes, but many amendments are expected in the Senate. The differences between the versions will be worked out by a conference committee.

Under their budget agreement with President Clinton, the senators and representatives must find $50 billion in tax and fee increases to offset partly the $135 billion in tax cuts for families and investors, making the net tax reduction over five years $85 billion.

The potential tax increases have been the main focus of the lobbying, but other lobbyists have been less successful than those who worked on the ethanol subsidy.

The first tax benefit for ethanol was enacted in 1978, when the United States was threatened by an international oil embargo. Support of ethanol, it was thought, would reduce the country's dependence on foreign oil, provide an additional market for U.S. agricultural products and improve the environment because gasoline with alcohol in it burns more cleanly than regular gasoline.

Over the years, the value of the ethanol subsidy has been repeatedly questioned, but it has remained safely implanted in the tax code.

One reason has been the willingness of Archer Daniels Midland Co., by far the country's largest producer of ethanol, and of the company's chairman, Dwayne Andreas, to donate generously to politicians from both parties.

Last year, according to calculations by the Center for Responsive Politics, a nonpartisan watchdog organization, Archer Daniels, its executives and its political committee gave more than $1 million to the political parties and candidates for federal office, divided more or less evenly between Republicans and Democrats.

Another reason for ethanol's political invulnerability has been the strength of corn farmers in Washington. To solidify their position, the National Corn Growers Association organized a blitz of telephone calls and visits last week to senators on the Finance Committee.

Pub Date: 6/22/97

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