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FARM SCENE: Ethanol _ bonanza or $3 billion boondoggle?

June 9, 1997

WASHINGTON (AP) _ It is praised as a billion-dollar-plus bonanza for Midwestern farmers. But ethanol _ the alternate motor fuel made from the corn that blankets the nation’s midsection _ is also under fire as an extravagant drain on American taxpayers.

Critics say ethanol’s $600-million-a-year federal tax break has to go.

``This ethanol subsidy amounts to highway robbery,″ says Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee, which is writing a wide-ranging tax bill.

Ethanol became a target when lawmakers went hunting for $85 billion in tax cuts promised in the recent budget agreement between Capitol Hill and the White House. Eliminating the ethanol subsidy could save $3 billion over five years.

The fact that Archer hails from Texas _ whose oil barons see agribusiness giant Archer Daniels Midland as an unwelcome competitor _ makes ethanol all the more vulnerable. ADM, based in Decatur, Ill., owns half the nation’s output of ethanol.

``It’s the only tax program that’s referred to by name when the issue of so-called corporate welfare is brought up,″ complained Sen. Dick Durbin, D-Ill., an ardent defender of ethanol’s special status.

At issue is a 5.4-cent-a-gallon discount off the federal gasoline tax of 18.4 cents per gallon for purchasers of ethanol. The subsidy benefits ethanol producers and farmers by creating demand for the product.

Reformulated gasoline, typically containing 10 percent ethanol, is sold nationwide but primarily in more than three dozen cities with the dirtiest air. Specially designed vehicles can run on fuel with larger amounts of ethanol.

Critics have been gunning for ethanol’s tax break for nearly two decades.

Past fights have ended with pro-ethanol forces prevailing on the argument made by farm-state lawmakers _ notably former Senate Majority Leader Bob Dole of Kansas _ that the product is good both for rural economies and the environment.

House Speaker Newt Gingrich, who helped save the ethanol subsidy in 1995, predicted last week that the 18-year-old tax break will survive again. In another significant boost, Ford Motor Co. announced plans to build 250,000 ethanol-powered vehicles over the next four years, up from 5,000 last year.

Opponents of the subsidy are predicting victory, and even those determined to keep the tax break say its foes have a better shot this year.

``It’s an uphill battle when you’re taking on the chairman of a full committee who’s obsessed with eliminating the tax breaks enjoyed by the ethanol industry,″ said Rep. Jim Nussle, R-Iowa, referring to Archer.

The Agriculture Department predicted last month that farm income would drop by $8.2 billion and the U.S. trade deficit would increase $6.5 billion by 2005 if the ethanol incentives are revoked.

But the General Accounting Office, an arm of Congress, said the benefits of ethanol are dubious and come at a high price: $7.1 billion in lost tax revenue for road, bridge and highway construction since 1979.

More Democrats have joined the fight to kill the ethanol subsidies, largely to protest cuts in welfare by opposing government help for corporations.

The Ways and Means Committee aims to complete its work by Friday, then send the tax bill to the House floor.

Ethanol proponents are worried about the Senate but believe support is much stronger there.

``The bottom line is we have the numbers to keep this from being erased,″ said Sen. Tom Harkin, D-Iowa. ``It’s going to be a fight. But it’s always been a fight.″

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