Because to be a viable economic fuel it must have govt funding and subsidies. And it makes the supply of corn goofy and the need to feed livestock then comes into play.
Actually the grains used to make likker become better feed for livestock. They're called DDGs for Dried Distillers Grains. After converting the starch to sugars then removing it, the 'waste product' is a higher protein feed.
The reason Ethanol isn't bigger here is because of the IRS. Having to dry the living shit out of it so that it can be mixed with gasoline really drives up the cost of distillation and significantly lowers fuel yield (not to mention having to buy, transport and store the gasoline required to poison it)
If you take away the gasoline water could be left in there making a much better fuel (and more of it). The 'downside' of that being one could drink it without dieing. And there's no tax money in that.