“Every time you fill your tank,” the announcer said in the campaign ad, “the oil companies fill their pockets. Now Big Oil is filling John McCain’s campaign with two million dollars in contributions because, instead of taxing their windfall profits to help drivers, McCain wants to give them another 4 billion in tax breaks.”
The ad cited a paper issued by the Center for American Progress, estimating that the five largest publicly traded oil companies would save $3.8 billion under a tax cut proposed by Sen. John McCain, R-Ariz. — thus, a $4 billion tax cut for “Big Oil.”
But the ad omitted an awkward fact: Barack Obama actually raised 31 percent more money than McCain from those five oil companies that CAP designated collectively as “Big Oil.”
Now, on Wednesday, before a gathering of chief executive officers, Obama called for the exact same sort of huge tax break for “Big Oil” for which his campaign had attacked McCain.
But this isn’t a tale of crony capitalism. It’s actually a tale of Obama shedding his misleading campaign-season rhetoric and adopting a sound policy that could help the economy.
The tax cut in question is a reduction in the federal corporate income tax, currently at 35 percent. Rather than a tax break for “Big Oil,” it was actually a tax cut for every single profitable corporation in America.
The breadth and the neutrality of reducing the corporate tax rate is what made Obama’s 2008 attack misleading, but it’s also what makes Obama’s 2010 proposal uncharacteristic — uncharacteristic because it doesn’t pick winners and losers.
President Obama Wednesday addressed the Business Roundtable, a lobby group made up of CEOs from many of the nation’s largest companies. Defending himself from charges that he is anti-business, Obama rattled off an expansive menu of proposed and current subsidies: last year’s stimulus, this year’s “jobs” bill, export subsidies, loan guarantees for nuclear energy, aid for the solar industry, high-tech subsidies, and more.
It’s hard to complain too much about tax credits — any safe harbor from the voracious Internal Revenue Service is welcome. But they may do more harm than good, and they often resemble spending more than tax cuts.
For instance, Obama’s stimulus bill expanded federal tax credits for the wind industry. As an alternative to the current “production tax credit,” given out when windmills generate electricity Obama created the new investment tax credit — any company installing a windmill gets a 30 percent tax credit.
As gravy, the American Wind Energy Association explains: “The ITC then qualifies to be converted to a grant from the Department of Treasury. The Treasury Department must pay the grant within 60 days of an application being submitted.”
If not for high taxes and targeted tax credits, capital would flow toward whatever technologies or business investors thought most promising — this is how markets help society. Thanks to the web of taxes and credits, though, capital instead flows wherever politicians and bureaucrats have decided is best.
Obama, to be fair, offsets some of the distortion inherent in subsidies and tax credits, because he is trying to create so many — not just wind, but solar, natural gas, nuclear, and biomass. While this avoids the error of putting all of our energy eggs in one basket, it still is less efficient than the free market and more prone to political gaming.
This arrangement — where government sets up incentives and tries to harness the profit motive toward whatever the politicians favor — is what Obama pitched to the CEOs on Wednesday when he spoke of business and government “working together.”
Here’s one way of putting it: Obama is happy with business being the engine of the economy, he just insists that government does the steering.
Timothy P. Carney is The Washington Examiner’s Lobbying Editor. His K Street column appears on Wednesdays.
