The following is the body of a letter sent today by ATR Tax Policy Director Ryan Ellis to Senator Tom Coburn (R-Ok.) in response to a letter he sent to us today:

First, Americans for Tax Reform opposes the ethanol tax credit, and always has.  It is one of literally hundreds of tax code provisions which are bad tax policy and bad policy otherwise.  We support its full and permanent repeal.

Second, the best policy outcome is to eliminate the ethanol tax credit in a way that leaves money in the hands of taxpayers, not increases the amount of money going to Washington for the Appropriations Committees to spend.  Your amendment as written to repeal the ethanol credit (unfortunately) does the latter.  ATR supports coupling the repeal of the ethanol tax credit with an offsetting tax cut of equal or greater size to avoid a net tax increase on the American people.

Third, the ethanol tax credit is not a spending program, despite your repeated attempts to claim that it is.  According to the Joint Tax Committee (JCX-54-10), your amendment would increase taxes by $4.869 billion over the next two years.  Repealing the ethanol credit is the right thing to do, but other taxes must be reduced in the same legislation by at least this much to prevent a net tax increase.  

Spending programs and tax relief are not the same thing.  If the government lets Tom Coburn keep a dollar of his own money, that is not the same thing as the government stealing a dollar from Ryan Ellis and giving it to Tom Coburn.  The differences between tax relief and spending are unambiguous.

Fourth, we have made our position on this crystal clear to you, to your staff, and to the media.  An article by Chris Casteel in The Oklahoman (“Tom Coburn’s Attack on Ethanol Subsidies Collects Powerful Allies,” March 28, 2011) accurately quotes me articulating ATR’s position that the ethanol tax credit is bad tax policy, bad energy policy, and must be repealed in a tax revenue-neutral way.  I spent 40 minutes on the telephone with your Communications Director, John Hart, on Wednesday, March 23, 2011 and transmitted the same message; he told me that he understood ATR’s position.  However, our position is not accurately reflected in your letter sent today.  If there is something we could do to make our position more clear, please let me know.

Fifth, please understand that our position on this matter has little to do with any specific deduction or credit and much to do with avoiding massive tax increases, such as those you supported in the Simpson-Bowles-Obama commission.  That plan would have not simply eliminated guppy tax credits like ethanol, but also chopped away at the whale-sized mortgage interest deduction, charitable deduction, state and local tax deduction, and the employer-provided healthcare exclusion.  The commission’s own score indicated that their failure to cut rates sufficiently in concert with these moves resulted in a ten-year net tax hike of over $1 trillion.  Congressman Paul Ryan (R-Wis.) says it
was closer to $2 trillion.  The Heritage Foundation thinks it’s more like $3.3 trillion.

Eliminating a small tax credit without offsetting tax cuts of equal or greater size creates the precedent that net tax increases are a legitimate fiscal tool for pro-taxpayer policymakers.  Ted Kennedy’s definition of “tax reform” was to broaden the base and do nothing else, but that’s simply not acceptable to taxpayers.  How is a tax-compromised conservative movement supposed to tell Senator Dick Durbin (D-Ill.) and others “no” the next time they ask us to raise taxes?

Sixth, the Taxpayer Protection Pledge (signed by 41 United States Senators, notably you) does not protect any individual deduction or credit, or stand in the way of tax reform.  It simply requires that any elimination of a deduction or credit be offset with a tax cut of equal or greater size.  Senators who have signed the Taxpayer Protection Pledge have promised to their constituents and the American people (N.B., not to ATR) to “oppose any net reduction or elimination of deductions and credits, unless matched dollar-for-dollar by further reducing tax rates.”  This is clear.  This is unambiguous.  Support for your amendment as written is simply inconsistent with this promise.

Americans for Tax Reform once again urges you to modify your ethanol tax credit repeal amendment to include a tax cut of equal or greater size to the tax increase you have proposed.  Given the relatively-small size of the tax increase you have offered, this should be a simple matter.  I remain ready to assist your staff in modifying your amendment so it becomes Pledge-compliant.  Obviously, some tax cut offsets make for better policy than others, but the first test is avoiding a net tax hike at all.

If you append to your amendment a tax cut of equal or greater size to the tax increase you have proposed, ATR will then endorse and urge all senators to vote for your amendment.  ATR opposes net tax increases as a matter of principle, and your amendment as currently written is a net tax hike.