Whenever government increases its role in the economy, the spoils tend to go to the big and the well connected.
Witness the New Market Tax Credit.
I picture the debate in the 1990s over the New Market Tax Credit going like this:
PRESIDENT CLINTON AND OTHER DEMOCRATS: We must have a government program that will make poor neighborhoods no longer poor!
REPUBLICANS IN CONTROL OF CONGRESS: Okay, but only if it's a tax cut.
DEMOCRATS AND REPUBLICANS TOGETHER: And the money should go to Wall Street!
NMTCs are supposed to “spur new or increased investments into operating businesses and real estate projects located in low-income communities.” Here's an explanation of how the program works, from the office of Senator Tom Coburn:
The direct government subsidy (the tax credit) is claimed by the private financing entity based on the amount of their investment.* Businesses and other projects, such as hotels, recreational centers, health spas, movie theaters, and fast food chains, receive low-interest loans from the lending entities claiming the NMTC.
Coburn's office produced a study on what exactly is being financed by this tax credit:
The NMTC helped finance a Starbucks in Indianapolis, a bakery in New Bedford, Massachusetts, a baseball stadium in Kentucky, four bowling alleys, six car washes, four coffee shops, a day spa in Alaska, an IHOP in Milwaukee, four law firms, and at least two Mexican restaurants in Colorado and Wisconsin. From fast food joints to parking garages and luxury hotels, the government subsidizes banks for investing nationwide chains or corporations with proven business models in little need of this government handout. Another $17 million NMTC allocation paved the way for the residents of Pittsburgh to get a new Target store, and a specialty tea shop in Columbus, Ohio received two NMTC allocations.
Of course, no matter what's getting funded, the banks are getting free money.