Grain Bins


Ethanol tax credit is proven an economic success

Posted on November 21, 2008

The federal investment in ethanol over the past three decades has yielded billions of dollars of economic gain, according to a report released this week from economic consulting firm LECG, LLC. The South Dakota Corn Growers Association (SDCGA) welcomes official affirmation of the far reaching benefits the ethanol industry has delivered to the economy during the industry’s infancy.

The report concluded that each dollar invested in America’s ethanol industry in the form of the federal excise tax credit returned nearly $5 to federal, state and local government and the economy as a whole. According to the analysis, the tax provision has not only increased federal tax revenues, but also reduced imported oil expenditures and put more money into consumer pockets. The analysis was conducted by LECG Director John Urbanchuk.

"This is yet another piece of proven evidence for the positive impact ethanol is making on our economy,” said Bill Chase, president of the SDCGA.

Among the findings in the study include the ethanol industry has paid for itself since the inception of the excise tax credit. An estimated $33.4 billion in tax revenue for the Federal government and nearly $17 billion of additional tax revenue for State and Local governments has been generated since 1978. The estimated cost of the ethanol tax credit over this same period was $30.4 billion. Consequently, the ethanol industry generated a surplus of about $3 billion for the Federal treasury alone over the past three decades.

In addition, an unexpected benefit to consumers is the excise tax credit also has saved taxpayers money by reducing farm program outlays through higher prices for corn. Recent research published at Iowa State University estimated that the Federal government saved $3.45 billion in 2007 alone because it was not making loan deficiency payments, as it was in 2005 and 2006.

"The federal investment in America’s ethanol industry has been and will continue paying dividends for the American economy,” said Urbanchuk. “The federal tax incentive has spurred the kind of investment in rural America that has not been seen perhaps since the New Deal. The resulting benefits of this investment have yielded billions of dollars in new tax revenue, created hundreds of thousands of jobs, reduced America’s oil dependence by billions of barrels, and helped keep nearly $100 billion here at home rather than being spent for oil overseas. Economically, this incentive has been an unequivocal success.”

The study silences yet another attack on the corn and ethanol industries by big food companies looking to pin the blame on other sources for their food price gouging. Big food companies are benefiting from federal subsidies while reaping record profits and wrongly blaming ethanol for high food prices.

Led by the Grocery Manufacturers Association, the latest attack this week appears to seek the elimination of energy incentives that have helped ethanol develop and grow in an effort to reduce U.S. dependence on foreign oil from unfriendly countries. No mention is ever made regarding other energy sources receiving incentives, with petroleum being notably left out of the discussion.

In fact, the $3 to $4 billion blenders credit is actually passed on to the oil companies who blend the product, not the producers of ethanol.

Key findings of the ethanol tax credit analysis include the following benefits of the federal tax incentive for ethanol blending and the resulting growth of the American ethanol industry since 1978:

  • More than 53 billion gallons of ethanol have been produced, or about 1.2 percent of all the motor gasoline sold over this period. (In 2008, ethanol represents 7% of the nation’s gasoline supply.)
  • A displacement of nearly 1.9 billion barrels of imported crude oil (the amount of crude required to produce the ethanol equivalent of 34.9 billion gallons of gasoline) valued at $97.5 billion.
  • An addition of $228 billion to the nation’s Gross Domestic Product (GDP) by 2008.
  • The creation of more than 210,000 jobs in all sectors of the economy.
  • Increased household incomes by $66.2 billion

“The ethanol industry is still in its infancy and the tax credit is critically important to stabilize the industry,” said Chase. “The tax credit is an investment in the entire nation’s security and economic growth.”

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