20100520 ethanol plant 18
The ethanol plant that's owned by Marathon, the oil company, and The Andersons, an Ohio-based agribusiness enterprise. Battelle, an R&D lab, led the government-funded project to inject carbon emissions from the ethanol plant and bury them miles beneath the earth. - 

Kai Ryssdal: Time now for today's lesson in how the politics of the American economy actually work. Yesterday, the Senate voted overwhelmingly to end a federal tax break for ethanol, the stuff made from corn that get blended into gasoline. If it gets by the House and signed by President Obama, gasoline refiners will start paying the U.S. Treasury an extra $6 billion a year.

The turnaround on ethanol subsidies is a big fall from grace for a domestically grown fuel that's supposed to help reduce our reliance on foreign oil, and also happens to be politically well-connected. And the vote could eventually mean a breakthrough on cutting the deficit. Marketplace's John Dimsdale reports.

John Dimsdale: Tax subsidies for corn ethanol used to be as American as apple pie for most politicians -- especially for those with an eye on the White House.

Charles Cook: You know, they wouldn't be there if it wasn't for an Iowa caucus.

Charles Cook is editor of the Cook Political Report. He says the country's earliest presidential primary caucus is in the heart of corn country.

Cook: It was sort of a silver-bullet-type way to get ahead. Now, that's changed some because the budget politics have changed the way the world's working.

That's somewhat of an understatement. More than two-thirds of the Senate voted yesterday to immediately end the 45-cent-per-gallon tax credit for oil refiners who blend ethanol into gasoline.

Vin Weber: Which means raising a tax.

Vin Weber is a former GOP congressman. He says the fact that almost three-fourths of the Republicans in the Senate would vote against ethanol subsidies creates an opening for the idea that tax hikes are one way to balance the books.

Weber: If there's some way of defining increased revenues that are acceptable to conservatives as not violating their creed of opposition to tax increases, that's a big deal.

Because it creates more revenue-raising opportunities. As examples, Weber points to recommendations from several deficit reduction commissions to trim or eliminate tax breaks for real estate investments, corporate research and development spending or export incentives. Call it closing loopholes or cutting tax expenditures, says Weber. Just don't call it raising taxes.

In Washington, I'm John Dimsdale for Marketplace.