The Senate approved an amendment to an economic development bill that would end the ethanol blenders’ tax credit and the tariff on ethanol imports. While the vote shows Senate support for ending the tax credit, the vote was mostly symbolic. It is not clear that the Senate will pass the underlying economic development bill and the House is not expected to consider the bill, even if it does pass the Senate. Further, the Obama Administration says it wants changes to ethanol subsidies, but not a complete repeal of economic incentives. A vote on essentially the same amendment was defeated earlier in the week.

Senators John Thune (R-SD) and Amy Klobuchar (D-MN) introduced a bill that would reform ethanol policy but not end the tax credit and import tariffs  immediately. The bill would switch the 45 cent per gallon tax credit to a variable incentive tied to oil prices. At least a part of the money saved by this change would be diverted to help expand ethanol fueling infrastructure such as blending pumps. If passed, the bill would take effect on July 1. This proposal has bipartisan support and may still be approved even after the vote to end subsidies. According to Thune and Klobuchar the plan would save about $1 billion.

The Obama Administration released a statement early this week contending that the funding bill for agriculture for fiscal 2012 approved by the House Agriculture Appropriations Committee does not provide enough money for several programs that are important to economic growth and job creation. Many of the farm program cuts proposed in the bill approved by the committee were later dropped when taken up by the full House. However, most of the cuts to nutrition programs were retained.

The Republican leadership in the House agreed to a rule to drop the cuts in farm program payments from the bill passed by the Ag Appropriations Committee if even just one member objected. As a result, most farm program cuts were dropped, including the amendment to lower the cut-off income for farmers receiving government payments to $250,000. Members of the House Agriculture Committee argue that changes in farm programs should be determined when the committee debates the 2012 Farm Bill. The debate in the House over the agriculture appropriations bill demonstrates just how hard it is to cut government spending. In addition to dropping proposed farm program cuts, House members voted down more than a dozen amendments that would have further reduced funding for food aid programs, agricultural research and programs that promote U.S. exports.

Meanwhile, negotiations to cut spending and raise the debt ceiling led by Vice President Joe Biden intensified this week, with participants now saying they expect to have an agreement by July 1. However, an agreement by this group will still face significant challenges in both Houses of Congress. The Chairman of the Senate Agriculture Committee, Debbie Stabenow (D-MI), met with Vice President Biden this week to express concerns about how agriculture is being treated in the talks. Stabenow says the Senate will not accept the cuts in farm programs and nutrition programs that were approved by the House Agriculture Appropriations Committee.

The Director of the Congressional Budget Office chimed in with his own warning about the risks associated with the allowing the government to default on its borrowing obligations. “Even a small increase in the perceived risk of Treasury securities would be very expensive for the country” he said. For example, if the added “risk” element caused interest rates on Treasury bills increase by just one-tenth of a percentage point over the next decade, it would add $130 billion to the government’s interest expense alone. The Treasury Department says Congress must raise the debt ceiling by the beginning of August or the U.S. government will be unable to meet its debt obligations. But opponents insist that an increase in the debt ceiling will need to be accompanied by large spending cuts and we’ve just detailed how hard it is to get agreement on cuts in the preceding items.