AFP Detailed Fact Check

Americans for Prosperity Fact Check

The following statements are found on AFP’s website.

AFP: “Americans for Prosperity advocates a tax code that…is designed to generate revenue for the government, not one that picks winners and losers in the market.”

Fact Check: Inaccurate

Truth: On the same webpage, AFP advocates continuing the 100-year old tax subsidy to oil companies known as intangible drilling cost expensing. That tax subsidy “picks” the oil industry for favorable tax treatment compared to alternative sources of energy. Through this practice, Western Capital Energy Development notes that “the risk capital is effectively subsidized by the government by reducing the participant's federal, and possibly state income tax.”

http://www.oilandgasjointventures.com/tax-benefits.html

AFP: “AFP supports the elimination of tax code provisions that are designed to advantage one entity over another…”

Fact Check: Inaccurate

Truth: See above.

AFP: “AFP opposes using the tax code to attack oil and natural gas producers that are simply using the same tax deductions that are broadly available to everyone else…”

Fact Check: Inaccurate

Truth: No one but oil companies can claim the following existing tax subsidies:

Percentage depletion allowance
Marginal oil well incentives
Enhanced oil recovery credits
Intangible Drilling Costs expensing
Deduction for tertiary injectants
Exception from passive loss limitations for oil and gas
Oil and gas excess percentage over cost depletion

AFP: Intangible Drilling Costs: “Allowing these deductions is not a subsidy as critics claim, it is supporting research and development just as the tax code allows all businesses to do.”

Fact Check: Inaccurate

Truth: This tortured logic claims that oil drilling business expenses (wages, fuel, supplies, etc.) should be treated as R&D expenditures because half the oil wells come up dry. Well, half of new restaurants go broke relatively quickly, so under the same logic all their expenses should be treated as R&D also. In reality, it is a special handout to the oil industry that even the participants call a subsidy (see Western Capital Energy Development statement above).

AFP: “The Volumetric Ethanol Excise Tax Credit (VEETC) currently provides a refundable tax credit of 45 cents for each gallon of ethanol blended into gasoline.”

Fact Check: Outdated

Truth: VEETC expired on December 31, 2011. AFP is currently spending millions of dollars on television ads and big events, but apparently doesn’t have $50 to update its website. Or maybe they maintain this type of outdated information in an attempt to mislead the policy debate and to defend the ongoing oil tax subsidies. Only AFP knows for sure.

AFP: “The import tariff on foreign ethanol…shield domestic ethanol producers and drive up prices by blocking the more cost effective sugar-based ethanol from abroad.”

Fact Check: Outdated and Inaccurate

Truth: Today, corn ethanol is the lowest cost transportation fuel in the world. The US is the world’s leading ethanol exporter because oil companies are blocking its increased use in the US (preventing a free market) and because US corn ethanol is lower cost than sugar-based ethanol. In fact, the number one importer of US ethanol is Brazil, the largest producer of sugar-based ethanol. Further, the offsetting tariff on ethanol imports expired on December 31, 2011 along with VEETC. In reality, the offsetting tariff simply ensured that VEETC would spur domestic fuel production, not foreign producers.

AFP: Criticizing it as a “protectionist measure” AFP states: “Using a Renewable Fuels Standard, the federal government mandates that America use 35 billion gallons of ethanol by 2022.”

Fact Check: Hypocritical

Truth: Although calling themselves advocates for the free market, AFP never criticizes the federal petroleum mandate or the Big Oil fuel distribution monopoly. [Click here to learn more.] In the face of these anti-free market barriers, the RFS is the best tool we have to help open doors for ethanol and to provide consumers with actual fuel choice, the bedrock of a truly free market.

AFP: Calling it a subsidy, AFP notes: “The Agriculture Department has also provided matching funds to investors installing blender pumps at refueling stations that dispense ethanol instead of gasoline.

Fact Check: Hypocritical and Inaccurate

Truth: The USDA program incents the installation of blender pumps, which provide the consumer the choice of various gasoline and ethanol blends. This actually enhances the free market by breaking down the gasoline monopoly. But while criticizing this program, AFP remained quiet on anti-free market policies, such as:

Federal loan guarantees for petroleum pipelines (only petroleum, not alternative fuels)
Big Oil “branded” contacts that do not allow local retailers to offer ethanol blends above E10
Big Oil using their distribution monopoly to freeze out competing fuels
Big Oil using both legislative lobbying and lawsuits to try to prevent the introduction of E15 into the marketplace. A blatant attempt to prevent free market competition.

AFP: “Despite over 30 years of favorable treatment the ethanol industry has achieved little.”

Fact Check: Inaccurate

Truth: Compared to the generous tax subsidies, loan guarantees, federal petroleum mandates, and fuel distribution monopolies enjoyed by Big Oil, it is hard to think of ethanol as having received “favorable” treatment. In fact, Mark Cussen at Investopedia states: “No other investment category in America can compete with the smorgasbord of tax breaks that are available to the oil and gas industry.” (http://www.investopedia.com/articles/07/oil-tax-break.asp#13068728219222&close)

In the face of the most powerful industry in this country’s history and despite federal policy being tilted in favor of oil for over 100 years, the ethanol industry has achieved a great deal:

Ethanol now displaces 10% of US gasoline consumption.
Ethanol accounts for 81% of new domestic fuel production since 2005.
US oil dependence dropped from a high of 60% in 2005 to only 45% in 2011, roughly half of that drop attributable to ethanol use.
Ethanol is now 25% of all domestic fuel production for gasoline vehicles.
Ethanol displaces 485 million barrels of foreign oil.
Ethanol supports over 400,000 US jobs.
Ethanol boosts US family income by $30 billion.

AFP: “Diverting corn from food to fuel has increased food prices for everything from cereal to dairy to meat and poultry – taking a bite out of the wallets of American families.”

Fact Check: Inaccurate

Truth: Higher corn prices do impact some food products, but it’s a miniscule impact on consumers compared to the costs imposed by higher energy prices. According to the updated food dollar chart from the USDA, today only 11.6 cents of each dollar spent on food goes to a farmer. And less than 3 cents of that goes to a corn farmer. In addition, it is important to consider the impact of ethanol use on the price of fuel. Last year economists at Iowa State University found that ethanol use reduced the average gasoline price in the Midwest by $1.37 per gallon. There is simply no doubt that the typical American family saves hundreds of dollars a year thanks to ethanol when you account for both food and energy costs.

AFP: “Ethanol’s supposed environmental benefits have also been called into question, prompting several environmental groups to actively oppose the subsidies.”

Fact Check: Hypocritical and Inaccurate

Truth: It is interesting to note the AFP doesn’t hold a high opinion of these environmental groups when discussing other issues like global climate change, coal emissions, and property rights. Regardless, ethanol blends are better for the environment than gasoline:

Ethanol has a higher energy balance than gasoline.
Ethanol uses less water to produce than gasoline.
Ethanol reduces greenhouse gas emissions compared to gasoline.
Ethanol reduces toxic tailpipe emissions compared to gasoline.
Ethanol reduces particulate matter emissions compared to gasoline.
Ethanol is renewable and biodegradable.

AFP: “But more than thirty years later we must conclude that ethanol has not lived up to the hype. The government support has done little to reduce oil imports or drive down prices at the pump…Diverting corn from the food supply has also been linked to higher food prices Americans are currently seeing on their dinner tables.”

Fact Check: Wrong. Wrong. Wrong. Wrong.

Truth: See above.

AFP: “AFP also supports eliminating the third way the federal government props-up consumer demand for ethanol beyond what the market would bear: the Renewable Fuels Standard.”

Fact Check: Hypocritical and Inaccurate

Truth: AFP refuses to oppose the federal petroleum mandate that forces most consumers to buy a fuel that is at least 85% petroleum or face massive government fines. Also, while the RFS does exist to counter-balance the numerous governmental subsidies for oil, it is interesting to note that in every year since the RFS was enacted, ethanol use in the US has far exceeded the RFS floor. In other words, despite all the benefits oil receives, the market is still demanding more ethanol than the RFS would require. It would be accurate to state that the RFS has yet to “force” one gallon of corn-ethanol into the marketplace. In fact, with wholesale ethanol prices substantially below gasoline prices, if the federal petroleum mandate were removed, there is simply no question that domestic ethanol use would be higher today than it is.

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For more information, visit the Iowa Renewable Fuels Association website at: