September 20, 2011

Senator Patty Murray
Co-Chair
Joint Select Committee on Deficit Reduction
United States Senate

Representative Jeb Hensarling
Co-Chair
Joint Select Committee on Deficit Reduction
United States House of Representatives

Dear Chairwoman Murray and Chairman Hensarling:

On behalf of the more than 300 member companies of the Renewable Fuels Association, I write to strongly urge you to ignore calls from various special interests to repeal the current Volumetric Ethanol Excise Tax Credit, or VEETC.  Without congressional action, this tax incentive is set to expire on December 31, 2011. 

To be clear, this tax incentive has proven to be wise policy and accomplished exactly what Congress intended it to do.  It has helped grow a domestic ethanol industry that today represents ten percent of the nation’s gasoline market and helps support more than 400,000 jobs nationwide.  The time has now come for this policy to transform and mirror the innovation and evolution of the ethanol industry itself. 

This past summer, a bipartisan group of senators worked diligently to develop a new direction in ethanol tax policy that would transform the current VEETC structure by investing in ethanol fueling infrastructure and cellulosic and advanced ethanol technologies while contributing more than $1billion to paying off the national debt.  Unfortunately, this compromise was not included in the final bill raising the debt ceiling and creating the committee that you now lead. 

While that compromise represents smart policy, the underpinning debt reduction it would have achieved is no longer available today.  As written, that compromise would have ended VEETC on August 1^st and saved nearly $2 billion for the remainder of 2011, or some $93 million dollars a week according to the Joint Committee on Taxation.  Given the December 23^rd deadline for congressional action under which you are working, barely $100 million would be saved by ending VEETC before its scheduled expiration.  This paltry sum and the market disruption that such a move may cause is more than enough reason for the committee to disregard naïve pleas to end this incentive before its already scheduled expiration.

We fully agree with Syracuse University economist Leonard Burman, former director of the nonpartisan Tax Policy Center, who told the Washington Post, “You’re not going to balance the budget by eliminating ethanol credits.  You have to go after things that really matter to a lot of people.”

If the committee is truly seeking to eliminate wasteful and market-distorting spending, we urge you to begin by rescinding permanent tax subsidies for the oil industry.  Several tax loopholes, such as the Section 199 deduction for all oil and gas activity, the deduction for intangible drilling costs, and the depletion allowance for oil and gas wells, are available only to oil and gas companies and further strengthen the monopoly these companies have on the nation’s gasoline market.  Removing these and other provisions would save at least $40 billion over the next decade – a pittance compared to the annual profits of oil companies – and significantly contribute to debt reduction efforts while simultaneously helping level the playing field for existing and emerging renewable fuel technologies.

The task before the committee is daunting and need not be further complicated by consideration of expiring programs.  Rather, we encourage the committee to take a comprehensive look at all existing energy tax policies and eliminate those ongoing policies that serve only to pad the balance sheets of already profitable and very mature industries.  America’s energy tax policy would better serve the American people by focusing on technologies and fuels of the future rather than continuing to support profitable but dwindling fuel sources of the past. 

Sincerely,

Edward M. Hubbard, Jr., Esq.

General Counsel

Renewable Fuels Association