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Moonshine run through a tax return is still moonshine

June 16, 2011

Congress failed this week to end the ethanol subsidy, largely because the subsidy is in form a tax credit. Grover Norquist therefore deems its elimination a "tax increase" and a violation of the Americans for Tax Reform's "no tax increase" pledge.

In real life, it's spending run through a tax return. The credit is refundable, as explained in IRS Publication 510 (page 24):

To the extent the alcohol fuel mixture credit, biodiesel mixture credit, renewable diesel mixture credit, alternative fuel credit, and alternative fuel mixture credit exceed taxable fuel liability, a payment is allowed and may be taken as a credit on Schedule C (Form 729), as a refund on Schedule 3 (Form 8849), or as an income tax credit...

So producers who have no taxes otherwise can file a form and get government money back, just like in a welfare office. Because the IRS functions as the welfare office, Mr. Norquist says that cutting the subsidy is a tax increase.

The episode provides a valuable lesson to corporate welfare seekers: get your subsidies through the tax code, so Grover Norquist will be on your side.

Other coverage:

Tax Policy Blog: The Ethanol Tax Credit and Sound Tax Policy

Investors Business Daily: Big Corn Eats GOP

Tax Vox: The GOP, Ethanol, and the No-Tax Pledge

Tax.com: It's Time to Lose Grover

Tags: ethanol.Grover Norquist.tax policy.