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LECG Study Shows Ethanol Tax Exemption Increases U.S. Government Revenues and Reduces Dependence on

Grainnet  November 19, 2008   

Wayne, PA—The federal investment in ethanol over the past three decades has yielded billions of dollars of economic gain, according to a report released November 17 from economic consulting firm LECG, LLC.

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, conducted by LECG Director John Urbanchuk on behalf of the Renewable Fuels Association (RFA), found that America’s ethanol industry has: ”...generated an estimated $33.4 billion (2008$) in tax revenue for the Federal government and nearly $17 billion (2008$) of additional tax revenue for State and Local governments since 1978, reduced America’s tab for imported oil by $97.5 billion, helped reduce farm program payments by more than $3 billion annually since 2006, and put some $66 billion more into the pockets of Americans in the form of increased household income since its inception in 1978.”

“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.”

Key findings of the 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 $97.5 billion (2008$).
• 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. (Note: After 2006, this calculation includes only those gallons produced above the mandated levels as established first in the Energy Policy Act of 2005 and revised in the Energy Independence and Security Act of 2007. By comparison, the ethanol industry helped create 238,000 new jobs in 2007 as a result of the 6.5 billion gallons produced.) • Increased household incomes by $66.2 billion (2008$).
• The ethanol industry has paid for itself since the inception of the excise tax credit. An estimated $33.4 billion (2008$) in tax revenue for the Federal government and nearly $17 billion (2008$) 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 $30.4 billion (2008$). Consequently, the ethanol industry generated a surplus of about $3 billion for the Federal treasury alone over the past three decades.

*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."

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