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$5 billion-a-year ethanol subsidy nearing its end?

Corn grain isn't just for animal feed and high-fructose corn syrup anymore. Subsidies make it valuable as a way to create ethanol, which is mixed with gasoline as a way to reduce air emissions.Seth Perlman / AP
/ Source: staff and news service reports

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, and 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.

Provided in the form of tax credits, the subsidy gives 45 cents a gallon to refiners who use ethanol, a renewable fuel additive that comes mainly from corn in the U.S.

These tax breaks long have been supported as a way to reduce oil imports by politicians in both parties — emphatically so for many who run for president and look to woo the farm vote.

But a new emphasis on deficit reduction, particularly among Republicans aligned with Tea Party activists, has contributed to a shift in the political landscape.

Environmental groups like the Sierra Club argue that corn-based ethanol isn't any cleaner than gasoline because of all the fossil fuel used to farm corn. They instead want to see more renewable energy like solar and wind.

The measure will now be added to a bill renewing a federal economic development program. The prospects for the overall bill are uncertain, but Thursday's vote clearly endangers the ethanol tax credit, which would expire at the end of the year anyway, unless Congress renews it. The measure passed Thursday would end the tax credit immediately.

"The best way for ethanol to survive is to stand on its own two feet, without spending something we don't have to get something we're going to have anyway," said Sen. Tom Coburn, R-Okla.

The White House issued a statement saying it was against a full repeal of ethanol subsidies, indicating it could use its veto power if the amendment continued to advance in Congress.

"We need reforms and a smarter biofuels program, but simply cutting off support for the industry isn't the right approach," said Agriculture Secretary Tom Vilsack.

The Senate also voted 59-41 to reject a measure that would have eliminated a government program that supports the distribution of ethanol, providing some hope to a Farm-belt industry that is in danger of getting dinged by budget cutting efforts. The House had passed a similar measure earlier in the day, by a vote of 283-128, adding it to an agriculture spending bill.

The debate played out as the White House and congressional leaders continued to negotiate spending cuts to help reign in government red ink. The federal government, which borrows about 40 cents of every dollar it spends, has already hit the legal borrowing limit of $14.3 trillion.

Treasury Secretary Timothy Geithner has warned Congress that the U.S. risks an unprecedented default on Treasury bonds if the borrowing limit isn't increased by Aug. 2. However, a growing number of lawmakers say they won't vote to increase the borrowing limit without substantial deficit reduction.

Many Republicans have ruled out tax increases, though some have said they would support ending narrowly-tailored tax breaks like the ethanol tax credit. The ethanol tax credit is part of a package of dozens of business and individual tax breaks that Congress usually renews each year. Thursday's vote could also spell trouble for some of the others.

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.

Supporters of continued federal spending for ethanol argue it is a leading source of alternative fuel that helps reduce U.S. dependence on foreign oil.

Sen. Tom Harkin, D-Iowa, said there should be a transition period rather than an abrupt elimination of the tax credit.

"This is truly a homegrown industry, built on the investment and labor of many thousands of Americans, providing a product that helps us with one of our most pressing national issues: our dependency on imported oil," Harkin said.