Norquist Loses in Ethanol Subsidy Fight

Written by J.D. Hamel on Friday June 17, 2011

During the debate over ending ethanol subsidies, Tom Coburn was the fiscal conservative while Grover Norquist was a fiscal phony.

The media largely framed the debate over ethanol subsidies between Senator Tom Coburn and Americans for Tax Reform president Grover Norquist as a contrast between two approaches to deficit reduction: Coburn’s pragmatic willingness to raise more revenue on the one hand, and Norquist’s ideologically-rigid opposition to tax increases on the other.

That’s one way to look at it.

But there’s a better way to look at it: Tom Coburn is the ideologically-consistent conservative, and Grover Norquist is a fiscal phony.

It’s worth remembering exactly what ethanol subsidies are. As “tax expenditures” they redirect money from the US Treasury to a particular group -- in this case corn farmers -- to provide financial incentives for that group to engage in a certain behavior.

These subsidies, in their superficial aim, inevitably work. Corn farmers receive billions of dollars a year to produce ethanol. This reduces the money they spend on producing ethanol, and thus directly increases their profits and encourages them to increase output.

The problem is that like every other tax expenditure, ethanol subsidies are a direct wealth transfer.

As Grover Norquist is undoubtedly aware, taxpayer dollars don’t grow on trees. The money that pays for ethanol subsidies is confiscated from the American public at large. So while the farm lobby benefits from the expenditures, the rest of us lose in the form of higher taxes or increased deficit spending.

To be fair, ethanol proponents argue that the subsidies serve a valuable function -- reducing our dependence on foreign energy sources, or decreasing carbon emissions. I find the first of these arguments unpersuasive, while the second is laughably unsupported -- it takes lots of carbon emissions to grow corn, and more to turn it into a workable fuel -- but I’ll leave the wisdom of ethanol to the side.

The question of subsidies is another matter entirely. Those subsides, like all subsidies, inherently distort the market. Consumers direct resources to the goods and services that most satisfy their desires, but ethanol subsidies forcibly transfer resources from consumers to farmers. Maybe those resources would have gone to savings, or to investment in more profitable ventures. But thanks to ethanol subsidies, they go to agribusiness.

To call the end of these subsidies -- a government transfer program -- a tax increase is possibly the most un-conservative argument that I have ever heard.

The only difference between an ethanol subsidy and a welfare payment is where the subsidy goes (the business or the poor person) and how it gets there (through the IRS or some other agency). Does the fact that ethanol subsidies are filtered through the IRS make them some sort of tax cut? Of course not.

But maybe if Obama had filtered his multi-trillion dollar health care reform through the tax code, he would have found an unlikely ally in Grover Norquist.

A further problem with Norquist’s position is its apparent ignorance of our deficit. Starve-the-beast economics may have made sense in the 1980s, but after three decades of the doctrine’s failure, conservatives should know one thing: government programs are almost always paid for by higher taxes or more deficit spending.

And what is deficit spending? Yep, a future tax on people like me. So while I appreciate Norquist’s fulmination against tax increases, I’d appreciate it if he’d transfer that passion to the tax increases that will most affect me -- those that are coming because “conservatives” like him won’t take the rare opportunity to eliminate a government spending program.

It is uplifting that the gross majority of Senate Republicans broke with Norquist and joined the real conservative in this fight, Sen. Tom Coburn.

Those conservatives apparently realize that every dollar the government spends is a dollar that someone has to pay back. I hope they continue to realize that fact -- and continue to ignore the demands of fiscal phonies like Grover Norquist.