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Monday, August 29, 2011


Our federal government continues to run a con that hands six billion taxpayer dollars a year to companies involved in producing ethanol-doped gasoline that damages engines, increases carbon emissions over pure gasoline, and costs more than pure gasoline. Yet earlier this year, Congress defeated attempts initiated by Senators Tom Coburn and Dianne Feinstein to end ethanol production subsidies before the scheduled expiration. The vote to continue to waste money until the bitter end amid decaying economic conditions and epic debt battles is inexcusable.

Incredibly, against this backdrop, I received emails taking exception to my recent critical commentary on the ethanol travesty. In America’s severely weakened condition, such continued support for squandering money on governmental destruction of economic liberty shows how far we have strayed, decayed really, from our libertarian roots. Using boilerplate language, the subsidy defenders offered arguments that shared three common points:

  1. Only ethanol “blenders” receive federal support.
  2. Farmers receive none.
  3. What most critics call “subsidies” (including Manhattan Institute’s Robert Bryce, whom I cited) are actually tax credits. Apparently, tax code shenanigans constitute an OK sort of government favoritism.

As for the first claim, my statement that “$6 billion in annual federal subsidies continue to be paid to American farmers to grow corn for producing ethanol” does give the misimpression that farmers are the sole recipients of subsidies. Ethanol blenders indeed receive the lion’s share of federal favoritism in the form of tax credits. The second claim, that farmers receive no government help, collapses under scrutiny.

According to zFacts.com, a non-partisan site run by economist Steven Stoft, the federal government dispensed almost a billion dollars of taxpayer money to subsidize ethanol corn in 2006. Stoft, a consultant for electricity markets, points out that “real farmers, corporate farmers, and ethanol makers” reaped $5.4 billion in windfall profits due to subsidies. In other words, in 2006 alone, farmers and biofuel blenders pocketed billions enabled by federal ethanol supports.

To address the third claim, that ethanol subsidies must not be called subsidies because most of the transfer payments are tax credits, let’s start by examining the concept of transfer payments.

Using the tax code, government threatens financial penalties and/or imprisonment in order to transfer money from people who earned the money to people deemed more deserving. The term “transfer payment” more commonly applies to giving taxpayer money to low- or non-earning individuals using various forms of “aid” or “assistance.” But whether confiscated money buys food stamps, Pell grants, public housing, individual Welfare payments, or the manufacture of inferior products, the end result is the same: earnings get transferred to people who didn’t generate the earnings—exactly the result of the ethanol scam. Government reassigns wealth to businesses that cannot run profitably in the free market—corporate welfare, pure and simple.

One ethanol scam defender’s argument boiled down to the contention that corporate welfare disguised as tax credits is “a good thing” because producers are allowed to keep more of their own money. But in effect, ethanol producers and farmers are being handed my money—yours too. A mugging is never “a good thing.”

The truth is that years ago, corrupt politicians created ethanol subsidies to funnel wealth to biofuel industry campaign contributors. In 2007, Congress turbocharged the biofuel nastiness with legislation forcing Americans to use ethanol-adulterated gasoline. Such measures could not have passed without critical masses of non-Corn-Belt politicos swallowing the black-magic arguments of “green” zealots.

Black-magic biofuel businesses would not exist at all, or certainly not on the current scale, without market coercion by government. When politicians twist the tax code so that designed-to-lose businesses suddenly win, subsidization is precisely what is going on—even if the subsidies are called tax credits. But there are even more accurate adjectives and nouns to describe what’s happening in the ethanol scam, words such as “vulgar,” “crony,” and “capitalism.”

One ethanol subsidy proponent tried to hand-wave away the vulgar crony capitalism, arguing that “tax credits aren’t subsidies… [and that] since the industry is mature, the blender’s credit isn’t necessary… Plus the industry is scrambling to replace corn as the major source of raw material… plus, the protein residue left over from extracting the carbs from corn is fed back to cattle.”

And the cattle are eaten by people who do lots of other stuff. So everything is cool, right? No, everything is not cool. When asked if he believes that, without subsidies, farmers would grow as much corn as is currently grown and command the high prices currently enjoyed, the bringer of this argument did not answer.

Call the ethanol wealth redistribution scheme a subsidy or a tax credit. Or call the ruse what it certainly is—a sacrament of the Church of the Green Dragon. Names are irrelevant. Renaming a life-sucking parasite a rose leaves the host no less dead. Propping up businesses destined to lose money is a waste of money. All the various fantasy-world counterarguments disintegrate when confronted with real-world data and sound logic.

The bottom here is that confiscating money from someone and giving that money to a third party follows a central planning methodology that turns losers into winners and robs everyone else of economic freedom. By failing to end ethanol subsidies, Congress continued to defend a program that gives taxpayer money to campaign contributors for the manufacture of an environmentally, mechanically, and economically harmful product. Our public servants are engaging in self-serving duplicity that hurts the people that they swore to serve.

Nothing about the ethanol mess is “a good thing.”

Click here to email your elected representatives.


Ethanol subsidies are no longer necessary or desired by the industry. But incentives for blender pumps is essential, and critical to national energy security.

Lynn Bergman on August 31, 2011 at 11:50 pm
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