The Corner

If the GOP Really Opposes Cronyism, They Have A Chance to Prove It Before the End of the Year

Politicians are shameless, we knew that. But the latest fight between President Obama and Congress over the $450 billion extension of 55 specific tax benefits is exceptionally embarrassing anyway.

President Obama gave a one-year lease on life to these special-interest tax credits two years ago when he agreed to the fiscal-cliff deal with Congress — it was paid for by letting rates rise on the highest earners. Now, he’s threatening to use his presidential veto to stop an agreement that would make the tax breaks permanent.

CQ reports:

A White House spokeswoman said President Barack Obama would veto the emerging agreement, saying the plan “would provide permanent tax breaks to help well-connected corporations while neglecting working families.” Under the nascent plan, tax writers are hoping to have a compromise plan ready this week that would make some of the largest of the temporary tax breaks permanent, include credits for research and development, Section 179 expensing, two charity deductions, a mass-transit credit and the American Opportunity Tax Credit. Most other breaks would be extended for two years, but the plan would phase out the wind production credit by the end of 2017.

These extenders, of course, should expire, because they’re an economically damaging handout. But that’s hardly the point. The president isn’t opposed to that  part of the deal — he’ll support the extenders if only Congress also agrees to make the Earned Income Tax Credit and other individual tax credits permanent. (He seems to have no interest in fixing the real problems with the EITC, such as the $110 billion in improper payments it’s made over the last ten years.)

This is a great opportunity for Republicans to signal their commitment to ending cronyism in Washington — they should refuse this deal and push for fundamental tax reform. Since they’re apparently fine with forgoing $450 billion in tax revenues in the form of these tax credits, they should instead propose tax reform that would make the code fairer, simpler, and more predictable and use the $450 billion to get a significant reduction of the corporate income tax.

And if you have any doubts that these tax credits are about cronyism and deserve to meet their end, see this piece in the Wall Street Journal today about the wind-power  “production tax credit” by Americans for Prosperity’s president Tim Phillips. Here’s a tidbit:

Thirty years and billions of dollars later, the wind industry is still saying it needs taxpayer support. Congress is currently hearing this argument as it debates whether to extend the 22-year-old “production tax credit” in the lame-duck session. The PTC, which gives wind producers a 2.3-cent tax credit for each kilowatt-hour of electricity produced over 10 years, expired at the end of 2013. Now wind-industry lobbyists are roaming the halls of Congress, asking legislators to renew it as part of a tax-extenders package before adjourning on Dec. 15. ..

Over the past seven years, the PTC has cost taxpayers $7.3 billion, and it is expected to pay out $2.4 billion more in 2015. …

The program operates as one of America’s least-known wealth-redistribution schemes, forcing taxpayers to pick up the tab for wind farms beyond their borders. In 2012 more than 30 states paid more in subsidies than wind farms in those states received in tax credits. Citizens in five states paid more than $100 million more in federal taxes than they received from the PTC: California ($196 million), New York ($163 million), Florida ($138 million), New Jersey ($126 million) and Ohio ($104 million). Eleven states paid into the PTC even though they have no qualifying wind production. The unlucky losers included Florida, Virginia and North Carolina.

The whole thing is here. I have written and complained about these wind tax credits here  — but as you know, I am against all tax credits/subsidies to private businesses, not just green-energy companies. The tax-extenders package serves all kinds of cronies and should never reach the president’s desk.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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