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Public Statements

Economic Development Revitalization Act of 2011

Floor Speech

By:
Date:
Location: Washington DC

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Mr. GRASSLEY. I compliment Senator Klobuchar on her leadership in trying to find, first of all, leadership in supporting biofuels and alternative energy but also working very hard for the last few weeks to find a compromise on this issue that is a very difficult issue and very divisive here within the Senate.

So we are voting at 2:00 today on these amendments to which Senator Klobuchar has already referred. The first is an amendment by Senators Feinstein and Coburn repealing the incentive for domestically produced ethanol. I emphasize ``domestically produced'' because we do not have to worry about oil sheiks robbing us of all of our resources when you burn ethanol the way you do when you burn imported gasoline. The second amendment is offered by Senator McCain, prohibiting the U.S. Department of Agriculture from using funds for the installation of blender pumps.

These amendments won't lower the price of gasoline at the pump. That is what people today are concerned about--the price of gas at the pump. These amendments won't lessen our dependence on foreign oil. We spend $835 million every day importing oil. And these amendments won't create a single job in the United States. In fact, they will do just the opposite. They will raise the price of gasoline, make us more dependent on foreign oil, and they won't create a single job. Most importantly, these amendments also won't save the taxpayers any money because they stand little chance of being enacted. Even if the amendments were to pass today, they won't get out of this Chamber because of our Constitution that says that revenue measures must originate in the House of Representatives. So when this bill, if it passes the Senate, goes to the House, they are going to reject it, or they use the term ``blue slip'' this bill, and it is going to come back to the Senate. So this bill, with these amendments, is dead on arrival in the other body.

It is also dead on arrival at the White House. We have had indications in a statement that President Obama opposes repealing the incentives and is open to new approaches that meet today's challenges and save taxpayers money.

I remember one of the first policy discussions I had with then-new Senator Obama.

I was chairman of the Finance Committee. He came up, and we talked about what we could do working together to promote ethanol as an alternative energy. His idea was incorporated into a piece of legislation that became law. I was glad to work with him on it. So I thank President Obama for the statement he recently gave--again, now, as President of the United States--supporting alternative energies, biofuels, and, in this case, specifically ethanol.

The votes at 2 o'clock, then, are a fruitless exercise. So in a sense we are in political theater here as we debate these issues. We have already had this vote, and it was defeated 40 to 59.

Everybody knows oil is now hovering near $100 a barrel, and everybody knows, as we hear once a month or maybe are reminded every day, unemployment is 9.1 percent. So why has the Senate taken a full week, voting twice, on the same amendment that will increase prices at the pump, increase dependence upon foreign oil, and lead to job loss, or at least do nothing about the unemployment rate?

We should be having this debate in the context of a comprehensive energy plan. This debate should include a review of the subsidies for all energy production, not just singling out ethanol. Nearly every type of energy gets some market-distorting subsidy from the Federal Government. An honest energy debate should include ethanol, oil, natural gas, nuclear, hydropower, wind, solar, biomass, and probably a lot of other alternative energies I don't think of right now. By discussing it in the context of an overall energy policy instead of singling out ethanol right now, we would be able to then make sure we have a level playing field for all forms of energy because the government shouldn't be choosing between petroleum and alternative energy, as an example.

When the oil and gas subsidies were targeted, as the ethanol subsidies are being targeted right now and oil and gas subsidies were targeted last month, the president of the National Petrochemical and Refiners Association had this to say:

Targeting a specific industry, or even a segment of that industry, is what we would consider punitive and unfair tax policy. It is not going to get us increased energy security, increased employment, and it is certainly not going to lower the price of gasoline.

Well, those very same words could be said about the ethanol debate we are having right now because it would surely increase our energy insecurity, it would increase unemployment, and it is certainly not going to lower the price of gasoline.

So it seems to me that the old saying about what is good for the goose ought to be good for the gander applies. So what is good for a subsidy on petroleum and the people who defend that--why would we want the inconsistency we are demonstrating here? Because that gets back to how I voted on that provision about a month ago. I voted that we ought to deal with oil and gas and ethanol and all of those things in the same context and make sure they fit into an overall national energy policy.

In December 2010, Congress enacted this 1-year extension of VEETC, the volumetric ethanol excise tax credit, also known as a blenders' credit. We extended it for 1 year. That is what is being repealed in the Coburn amendment. This 1-year extension has allowed Congress and the domestic biofuels industry to determine the best path forward for Federal support of biofuels and for the phasing out of that subsidy.

As a result of these discussions, Senator Conrad and I introduced bipartisan legislation on May 4 that is a serious, responsible first step to reducing and redirecting Federal tax incentives for ethanol. Our bill will reduce and phase out VEETC over a period of a few years. It also would extend through 2016 the alternative-fuel refueling property credit, the cellulosic producers' tax credit that deals with a second generation of ethanol from things other than grain, and the special depreciation allowance for cellulosic biofuels plant property.

Earlier this week, I joined Senator Thune and Senator Klobuchar in introducing another bipartisan bill to immediately reduce and reform the ethanol tax incentive. It includes many of the same features as the bill I introduced last month with Senator Conrad, but it enacts these reforms this year, right now. Senator Thune's approach also leads to significant deficit reduction.

The legislation we have introduced is a responsible approach that will reduce the existing blenders' credit and put those valuable resources into investing in alternative-fuel infrastructure, including alternative-fuel pumps or, as Senator Klobuchar used the term, blender pumps. It would also make significant investments in advanced and cellulosic ethanol. That is the second generation of ethanol. That is where we want to go so we are not using grain for fuel. It is a forward-looking bill that deserves widespread support.

The Thune-Klobuchar bill of which I am a cosponsor will responsibly and predictably reduce the existing tax incentive and help get alternative-fuel infrastructure in place so consumers can decide which fuels they prefer. We shouldn't pull the rug out from under this industry that has made these enormous investments. We need to provide a transition.

I know that when American consumers have the choice, they will choose domestically produced, clean, affordable, renewable fuel. They will choose fuel from America's farmers and ranchers, rather than from oil sheiks and foreign dictators.

Both of the ethanol reform bills I mentioned are supported by the ethanol advocacy groups. In an almost unprecedented move, the ethanol industry is advocating for a reduction in their Federal incentives. No other energy industry has come to the table to reduce or eliminate subsidies. No other energy lobby has come to me with a plan to reduce their Federal support. For sure, Big Oil hasn't come forward with any suggestions on reducing their subsidies.

The best way to get deficit reduction that gets to the President's desk with a Presidential signature is a responsible transition such as the one offered by Senator Thune and Senator Klobuchar. Otherwise, this exercise today and these two votes today are a waste of time. This vote will simply put many Members of this body on record in support of a $2.4 billion tax increase.

I would encourage those who wish to reduce incentives and save taxpayers' money to work with Senators Thune and Klobuchar and the rest of us on a responsible transition that has a chance of being enacted and, most importantly, signed by the President; therefore, I urge my colleagues to oppose these two amendments.

I have always said that ethanol shouldn't be singled out, that it ought to be talked about in the context of an overall energy policy. But one of the reasons it has been able to be separated from all of the rest of the alternative energy as well as from all the rest of our energy policies we have for this country is because there is a great deal of ignorance about ethanol. We can tell that in this town when we hear a lot of people mispronounce the word ``ethanol'' with a long ``e.'' So I want to refer to some of these things, and I am going to use statements from the sponsor of the bill and refute some of these things I think are really wrong.

The first one:

We can save $3 billion if we eliminate the VEETC blending subsidy.

Well, there are a lot of numbers thrown around about how much this incentive costs and how much the Coburn amendment would save. I have a letter from the Joint Committee on Taxation with a score of the Coburn amendment. The fact is, the amendment, if enacted on July 1, 2011, would increase revenue to the Federal Treasury by $2.4 billion, not $3 billion as the author stated. Again, the Coburn amendment, if enacted, would be saving $2.4 billion. That is from the Joint Committee on Taxation; that is not my estimation. That is the estimation of the people who score for the Congress of the United States what impact various tax bills have.

Another statement:

All the blenders of gasoline in the United States--all of them--have called and written and said: ``We do not want the $3 billion for the rest of the year.''

I have a letter from the Society of Independent Gasoline Marketers of America--and they go by the acronym SIGMA--to the Senate majority and minority leaders opposing efforts to prematurely and abruptly eliminate the blenders' credit, contrary to the statement I just read that all the blenders want to do away with this.

The letter states:

As the leading marketers of ethanol-blended fuel at the retail level, SIGMA members and customers are the beneficiaries of VEETC. Simply put, SIGMA opposes recent moves to prematurely or abruptly end the subsidies without any consideration for future fuel and fuel-delivery costs. To end this incentive immediately would no doubt result in immediate spike in consumers' fuel costs.

That is the end of the quote from the Society of Independent Gasoline Marketers of America.

So I hope somebody will put that in their pipe and smoke it because the fact that all of these people, we have been told here on the floor of the Senate, don't want this--well, that is an incorrect statement.

Another statement:

According to the U.S. Department of Agriculture, 40 percent of last year's corn crop was utilized, converted to ethanol.

It is true that almost 40 percent of the corn crop went into the ethanol plant to produce ethanol. But what it doesn't tell us is that out of a 56-pound bushel of corn, there are 18 pounds of animal feed left over that is more efficient in fattening animals than even the original corn. That is called dried distillers grain. So I do not want people of this body to come to me in their ignorance and tell me we are using too much corn and saying it is 40 percent of the corn crop when 18 pounds out of every 56-pound bushel of corn is for very efficient animal feed. So I am going to take credit for that 18 pounds and refute this statement that 40 percent of last year's corn crop was utilized and converted to ethanol.

One bushel of corn produces nearly 3 gallons of ethanol and 18 pounds of high-value animal feed. In 2010, 4.65 billion bushels of corn were used to produce 13 billion gallons of ethanol. But ethanol production uses only the starch from the corn kernel. More than one-third, or 1.4 billion bushels of dry distillers grain, is left over available as a high-value livestock feed.

On a net basis, ethanol production used only 23 percent of the U.S. corn crop--far less than the 40 percent that Senator Coburn claims. According to the U.S. Department of Agriculture, feed use consumed 37 percent of the U.S. corn supply, much more than the 23 percent consumed by the ethanol production.

The next statement that is incorrect:

The American people ought to take into consideration when they go buy a gallon of fuel today--you already have $1.72 worth of subsidy in there. It does not have anything to do with oil and gas drilling.

I believe Senator Coburn is referring to a report from the Congressional Budget Office. For the record, that report relied on the questionable assumption that only a tiny fraction of ethanol consumption is attributable to the ethanol tax credit. Regardless, I am glad he raised this point about subsidies and oil and gas drilling.

Our colleagues may be interested to learn of the hidden cost of our dependence upon foreign oil. And these are not my estimates. I am going to give you references for you to look up.

A peer-reviewed paper published in Environment Magazine in July 2010 concluded that `` ..... $27 to $138 billion dollars is spent annually by the U.S. military for protection of Middle Eastern maritime oil transit routes and oil infrastructure, with an average of $84 billion dollars per year.''

Isn't it convenient to forget those costs of our national defense, such as keeping oil lanes open so we can get oil to the United States that we spend $835 million every day to import oil?

I wish to refer to another one.

Milton Copulos, an adviser to President Ronald Reagan, a veteran of the Heritage Foundation, and head of the National Defense Council Foundation, testified before Congress in a recent year on the ``hidden costs'' of imported oil.

Mr. Copulos stated that by calculating oil supply disruptions and military expenditures, the hidden costs of U.S. dependence on petroleum would total up to $825 billion per year. The military expenditure is equivalent to adding $8.35 to the price of a gallon of gasoline refined from Persian Gulf oil. There is no hidden--this is important about ethanol--because there is no hidden U.S. military cost attributable to homegrown, renewable, environmentally good ethanol.

Here is another statement I wish to refute:

There is a big difference between a subsidy that is a tax credit and allowing someone to advance depreciation because they are going to write it off anyhow.

The net effect to the Federal Government's revenue, if you take all of those away, is still zero.

That statement wants you to believe that all the tax benefits the oil industry gets are just tax benefits; they are not a subsidy. Well, my response is, I have to refer to a September 2000 report by the Government Accountability Office. But that report concluded that the Federal Government has granted tax incentives, direct subsidies, and other support to the petroleum industry. They describe tax incentives as Federal tax provisions that grant special tax relief designed to encourage certain kinds of behavior by taxpayers or to aid taxpayers in special circumstances.

According to the Government Accountability Office, the tax break allowing for the expensing of intangible drilling costs began in 1916. The percentage depletion allowance was enacted in 1926.

The Government Accountability Office estimated that these two tax incentives led to a revenue loss of as much as $144 billion between the time studied by the Government Accountability Office, which goes from 1968, to when the report was given in the year 2000.

I would say to my colleagues that those figures I just gave you are a far cry from the zero revenue effect that Senator Coburn claims for the oil industry. These are the Government Accountability Office's words and figures. They refer to them as tax incentives that resulted in the loss of revenue of more than $100 billion to the Federal Treasury over a 32-year period.

I have heard Senator Coburn on the floor on many occasions talking about the dire fiscal situation our country is in. I find myself voting with Senator Coburn most of the time. But on this issue, I disagree. Yet on this issue, it sounds as though he is arguing about semantics. One is a ``subsidy,'' yet the other is a ``legitimate business expense.'' In other words, in the case of ethanol, it is a subsidy. In the case of Big Oil and their taxes, it is a legitimate business expense.

I am not sure this argument over terminology will give our children and grandchildren much comfort when they are picking up the trillion-dollar tab over the next couple of decades.

The last statement I wish to refute is this:

Corn prices are at $7.65 a bushel.

Well, that had to be a couple days ago because I get a report every day on corn prices at my local elevator in New Hartford, IA. They were $7.10 yesterday. But let me quote again.

Corn prices are at $7.65 a bushel. They are 2 1/2 times what they were 3 1/2 years ago. [Ethanol] has been, this last year, the significant driver.

Let me suggest, first of all, that he is right, 3 1/2 years ago, corn was about $7 a bushel. But 6 months later, it was $3.58 a bushel. So anybody who thinks corn is going to stay at this historically high price is not very smart. And if farmers are spending money according to that, they better slow up because they are going to be caught off guard and out of business like they were in the 1980s.

So this is my response, in addition to what I said about corn going down to $3.58: Grain used for ethanol accounts for approximately 3 percent of the world's coarse grain. Let me reflect on that statement for a minute, because you get the opinion, when they say 40 percent of U.S. corn is used in ethanol, that, ye gods, what are people going to eat? But worldwide--and the grain market is worldwide--the global marketplace decides the price of grain. And worldwide, only 3 percent of the coarse grain--and corn is one of the coarse grains--is used for fuel. Because of the increased corn production, the amount of grain available for non-ethanol use is growing.

In the year 2000, there were 2.4 billion metric tons of grain available for uses other than for ethanol. Even with the growth of the ethanol industry, last year there were 2.6 billion metric tons of grain available for uses other than for ethanol.

It is also important to review the cost of corn in retail food prices. The corn price today: The corn cost in a gallon of milk is about 46 cents. The cost of corn in a pound of chicken is 34 cents. One pound of beef takes 92 cents worth of corn. One pound of pork requires 39 cents.

So you have all these excuses coming from the food manufacturers of the United States that ethanol is the cause of food prices rising. But you can see in the figures I just gave you that what the farmer gets out of a dollar's worth of retail food is about 21 cents. And you could cut this in half, and it will be cut in half, like it was 3 1/2 years ago. But when the price of corn goes down, you are not going to see big food manufacturers reducing their cost of food by 20 percent because they need ethanol as a scapegoat to raise the price of food.

That is all I have to say about ethanol. But I do have an amendment I am submitting to this bill that is before us that is unrelated to ethanol, but it also brings up the same point: that there are a lot of places in this budget we can save money.

Senator Johnson of South Dakota and I are submitting this amendment that pertains to setting limits that any one farmer, including this farmer, can get from farm program payments.

I have been pushing for reform of farm program payments for many years. Some folks from outside of Iowa unfamiliar with this issue may be surprised that I am the Member who keeps pushing these reforms. They may think: Iowa's economy relies heavily on agriculture. Why would a Senator from a farm State such as Iowa want a hard cap on farm payments?

But Iowa farmers understand why I continue pushing for a hard cap. This is about making sure the farm programs provide what they are supposed to provide: a safety net for those who need it; basically, farmers who have the economic incapability of overcoming natural disasters and political issues and international politics that they have no control over that affects the impact of farm income. Those are small and medium-sized farmers. They are not these megafarmers that are 10 percent of farmers getting 70 percent of the benefits out of the farm program.

These small and medium-sized farmers--as, of course, bigger farmers do--play a vital role in supplying our Nation and world with food. However, they are continually, as small farmers, faced with the challenge of rising land prices and cash rents. Many times, young and beginning farmers cannot compete because of high land prices and rents. There is no doubt the rise in commodity prices is part of the reason for higher land prices and cash rents.

But, currently, farm program payments are also placing upward pressure on land prices. This is not how it is supposed to work. What I just said means we are subsidizing big farmers to get bigger. There is nothing wrong with big farmers getting bigger. I do not argue with that in any segment of our economy. But we should not be subsidizing big farmers to get bigger.

The farm program was put in place to provide a safety net for farmers. It is meant to help them get through tough times. The farm program was not created to help big farmers get bigger. Let me repeat for you--because it cannot get enough emphasis--10 percent of this Nation's largest farmers receive 70 percent of the farm program payments.

These large farms do not need these program payments to get through tough times. Small and medium-sized farmers do not need nonmarket factors driving up the land prices and cash rents.

This amendment is a commonsense solution to this problem. Reform the farm program so it works as a true safety net for those it was intended for. We can do that by placing limits on how much a single farm operation can receive in program payments. The government should stay out of subsidizing the growth of large farms.

In addition, this amendment tightens the requirements for people to be considered an actively engaged farmer. For too long, people have gamed the system and received farm payments that the law did not intend.

There have been a number of amendments submitted to the EDA bill before us in the name of saving taxpayer dollars. The ethanol amendment--supposedly that is one of the motives behind it.

By setting hard payment caps, and making these other reforms, we will save the U.S. Treasury approximately $1.5 billion over 10 years.

The headlines around here are dominated by the problems of the budget. Many of my colleagues have come to this floor in recent weeks and discussed government spending and the big debt.

If this body is going to be serious about cutting spending, then this amendment I am laying before you as a limitation on farm payments is a continuation of that effort. Instead of spending time debating the merits of programs that assist the renewable energy industry, an industry that, by the way, helps us wean ourselves off our need for foreign oil, why do we not agree to make cuts in areas we should be able to have an agreement?

This is a simple and commonsense way for us to save money, while at the same time making sure the farm program accomplishes what it is supposed to.

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