There have been a few very good opinion pieces about the large amount of special-interest goodies in the fiscal-cliff bill. This morning the Wall Street Journal, for instance, had a piece in its Review and Outlook section titled “Crony Capitalist Blowout,” which gave a good summary of all the crony tax credits in the already infamous deal:
In praising Congress’s huge new tax increase, President Obama said Tuesday that “millionaires and billionaires” will finally “pay their fair share.” That is, unless you are a Nascar track owner, a wind-energy company or the owners of StarKist Tuna, among many others who managed to get their taxes reduced in Congress’s New Year celebration.
There’s plenty to lament about the capital and income tax hikes, but the bill’s seedier underside is the $40 billion or so in tax payoffs to every crony capitalist and special pleader with a lobbyist worth his million-dollar salary. Congress and the White House want everyone to ignore this corporate-welfare blowout, so allow us to shine a light on the merriment.
Here is a list of some of the tax credits:
If you haven’t read it yet, take a look at this great piece by the Washington Examiner’s Tim Carney that explains how these tax credits came to be included in the fiscal-cliff bill. This is particularly depressing when you consider how all these subsidies distort markets, make us poorer, and serve no other purposes than to enriching a few well-connected firms.
Take the wind-energy-production tax credit. This morning John Fund mentioned how this wind PTC has not only survived the fiscal cliff but was extended. But these tax credits are only the tip of the iceberg when it comes to wind cronyism. First, it is important to understand that they have been around in one form or another for over 20 years — if there were any truth to the argument than the tax credits help a nascent industry take off, we would have seen it by now.
Also, while only two wind projects have received loans under the 1705 loan program (the one that gave us Solyndra) for total amount of $219 million, almost $10 billion (that’s $10,000,000,000) have been paid to wind projects by the Department of Treasury under the 1603 program, a program that used to be a tax credit, but it was turned into a grant in the stimulus bill of 2009, providing up to 30 percent of a project’s cost in cash. Here is how Treasury explains the program:
The purpose of the 1603 payment is to reimburse eligible applicants for a portion of the cost of installing specified energy property used in a trade or business or for the production of income. A 1603 payment is made after the energy property is placed in service; a 1603 payment is not made prior to or during construction of the energy property.
A look at the list of wind recipients of the 1603 program reveals that it is mainly large and well-established companies have benefited of the Treasury’s largesse. For instance, it paid out $3.9 billion to projects that used GE’s turbines. Mitsubishi and Siemens are also on the list of the large companies that benefited from 1603 section by making wind-turbine gear (while also benefiting indirectly from the PTC).
Also, corporate giants NRG and NextEra respectively received $145.5 million and $955.5 million in cash as wind-farm owners. These payments come on top of the hundreds of millions of dollars that NRG and NextEra have received and will receive in cash or other forms for solar projects funded under the 1705 loan program. NRG, for instance, obtained $3.8 billion in loan guarantees for three separate solar projects. One of them was a $1.2 billion guarantee to build the California Valley Solar Ranch, for which the company is eligible for a $430 million cash payment under the Section 1603. The company’s other solar projects will also be eligible for some 1603 cash when they are completed. It is also worth noting that NRG also received some 39 grants under the stimulus bill of 2009. The list goes on and on . . .
I am picking on green-energy companies and their redundant subsidies, but the same can be said about any subsidies going any other private companies. I am against the billion of dollars spent on subsidies for fossil-fuel, nuclear, and natural-gas industries, as well as the ones going to the farm industry and financial industry.
On that note, I will once again leave the conclusion to former Reagan budget director David Stockman, because his comment written back in 1986 continues to be incrediblu relevant in today’s politics, especially in the light of the fiscal cliff bill and the upcoming pork-ridden Sandy bill. He wrote:
I had long insisted, to any liberals who would listen, that the supply-side revolution would be different from the corrupted opportunism of the organized business groups; that it would go after weak claims like Boeing’s, not just weak clients such as food stamp recipients. Given the heave-ho to the well-heeled lobbyists of the big corporations who keep the whole scam alive would be dramatic proof that we meant business, not business-as-usual.
You can substitute any company’s name (GE, NRG, or Goldman Sachs) to Boeing in this quote (even though 30 years later Boeing remains a gigantic crony) and apply the quotation to all forms of subsidies (oil, gas, wind, small businesses, manufacturers, automobiles, banks, etc.).
The CBO projects that after this fiscal-cliff deal, the cumulative deficit of the U.S. over ten years will be almost $7 trillion dollars. Especially in that kind of fiscal environment, it is time to end cronyism.