If Democrats really share the Occupy Wall Street goal of reducing wealth inequality, they could start by allowing the corporate welfare tax credits expiring this month to die forever. And if Republicans really believe in the free market and in tax reform, they’ll do the same.
The poster child for corporate welfare-through-the-tax-code might be a renewable-energy “tax credit” program created by Section 1603 of President Obama’s 2009 stimulus bill.
Companies installing solar and wind power generation have for years benefited from “production tax credits”: The government reduces the companies’ income tax liability a little bit for every kilowatt-hour of power produced.
Tax credits are an efficient way to tilt the playing field in favor of particular industries, as long as those industries are profitable — and thus owe taxes. (This is why oil, the country’s most profitable industry, is the biggest beneficiary of the broad-based production tax credits that Congress has created.) But wind and solar have trouble making a profit, because they aren’t as cost-efficient as their less “green” competitors
Combine their technological disadvantages with the recession, and you’ve got the problem described by liberal Washington Post blogger Brad Plumer: “few [renewable energy] investors have had a tax liability big enough to take advantage of the credit.”
The response was Section 1603 of the stimulus bill. This provision gives out “tax credits” for renewable energy, but the credit is not dependent on actually producing electricity. Instead it is awarded for simply investing in renewable energy facilities. More importantly, you can get the “tax credit” even if you pay no taxes.
Putting an even finer point on it, the “tax credit” is really a grant. A month after you make the investment you get a check from the Treasury Department. So the 1603 program is just a transfer payment from taxpayers to companies investing in solar and wind.
While most of the 4,000 grants given out under Section 1603 have been fairly small — like $2,004 for Gumbo’s Creole Cafe in Richmond, Va., to install a solar thermal system — a majority of the money doled out has gone to just 46 projects.
Eighteen grants have been for $100 million or more, and the most recent such nine-figure checks from Treasury mostly went to companies intimately tied to the Obama administration.
In July, U.S. taxpayers cut a $111 million check to Pacific Corp. as a reward for investing in the second stage of the Leaning Juniper Wind Farm in Oregon. Pacific Corp. is a wholly owned subsidiary of MidAmerican Energy, which is owned by Berkshire Hathaway, Warren Buffett’s conglomerate.
Buffett, the second-richest man in America at $39 billion in net worth, is a fundraiser for Barack Obama, and in October, he gave more than $30,000 to the Obama Victory Fund. He is now the beneficiary of taxpayer generosity.
Later in July, Treasury shelled out a $108 million subsidy for the Cedro Hill wind farm in Texas. Cedro Hill is owned by Edison International, whose former CEO, John Bryson, recently joined the Obama administration as commerce secretary.
And in September, major Obama booster Duke Energy got a $111 million subsidy as a reward for building the Top of the World Wind Project in Wyoming. Duke supports Obama’s push for mandatory federal greenhouse-gas constraints, which would drive up energy prices. Duke is also financing the Democratic National Convention next summer: Duke has guaranteed a $10 million line of credit for the DNC, which will essentially be a political commercial for Obama’s re-election. That means if the DNC can’t pay all its debts, Duke shareholders will pick up the tab.
There’s no need to suggest that cronyism is responsible for these huge subsidies to friends of Obama. This is just how business works in an economy where subsidies and regulations steadily grow. Profit increasingly comes not from providing consumers what they need at the lowest price — coal, nuclear, natural gas, and hydropower do that just fine — but from successfully influencing and reacting to public policy.
The same Republicans who complain about government subsidies and rail about Solyndra often favor programs like 1603 because they are nominally tax cuts — and because they subsidize businesses in their district. The same Democrats who whack Republicans for protecting “tax-cuts for the rich” will fight against spending cuts on the rich.
Section 1603 will expire on Dec. 31. That doesn’t mean it’s gone for good. Next year, lobbyists will try to bring it back in some form. The question then becomes: Will the parties heed their principles — or the lobbyists?
Timothy P. Carney, The Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.
