Coburn Blasts Tax Credit As Subsidy for Large Corporations
Oklahoma Republican Sen. Tom Coburn claims a federal tax credit ostensibly aimed at low-income communities instead acts more like a subsidy for wealthy investors and large corporations.
Coburn’s report on the New Markets Tax Credit (NMTC) coincided with the release of an analysis by the Government Accountability Office, which found that 62 percent of projects benefiting from the NMTC between 2010 and 2012 also received other forms of federal, state or local assistance. (RELATED: GAO: Investors Double-Dipping on Tax Credits)
Coburn emphasized that his report “is not intended to demonize the entities receiving the funds or the projects they are supporting, but rather to provide some transparency for taxpayers,” as Congress considers whether to extend the program for two more years with $3.5 billion in annual tax credit authority.
Although the NMTC is “just one among hundreds” of government programs that give unfair advantages to special interest groups, due to the complexity of the tax code and the influence of Washington lobbyists, “Congress routinely chooses to simply extend these tax breaks with little debate or oversight.”
To illustrate his point, Coburn provides numerous examples of projects that received tax credits under the NMTC, but which offer little or no actual benefit to low-income communities. (RELATED: IRS Erroneously Paid Out $132.6 Billion in Tax Credits Since 2003)
One such example is the AT&T Dolphin Tales exhibit at the Atlanta Aquarium, which received “two NMTC allocations totaling $40 million,” according to Coburn’s report. Although supporters claim the project created hundreds of jobs, many of those jobs were either not located in Atlanta or required specialized skills (such as dolphin training) that low-income residents did not possess. The program’s musical score, for instance, was recorded by an orchestra in Hollywood and produced by a team of entertainment industry veterans.
Moreover, taxpayers are not even allowed free admission to the exhibit. The charge for attending the 15-minute presentation is $64.95, which Coburn suspects “may be an especially high financial barrier for lower-income families.”
Coburn also relates another instance in which the city of St. Louis “offered $10 million in financing through [the NMTC] to a Fortune 500 company, Peabody Energy Corporation, to keep their business where it is, rather than move 10 miles outside of downtown St. Louis.” In contrast to the NMTC’s mission to “provide subsidies to projects that would not otherwise be economically feasible in low-income areas,” Coburn characterized the deal as being merely “an act of corporate welfare.”
Peabody eventually decided to remain in its existing location, and in what Coburn calls “a grand gesture,” also chose to return the tax credits to the city so they could be used for other projects.”
However, one of the projects those funds were diverted to was the creation of an old-fashioned trolley system, nicknamed the “Folly Trolley” by local residents concerned about its potential impact on parking, congestion and accessibility to emergency services. (RELATED: Electric Car Maker Fueled by Tax Subsidies)
Coburn also expressed concern that the NMTC is vulnerable to exploitation through the process of “twinning,” whereby “investors are able to claim the New Markets Tax Credit on the equity raised through other federal funding sources.”
One of the examples he gives of this practice involves U.S. Bank, which found a way to combine the NMTC with other tax credits for the installation of solar panels in California. In that case, its initial investment was returned through a state rebate program, allowing U.S. Bank “to claim a tax credit on money that was ultimately provided by the state program – not their own private investment.”
Coburn concludes that the NMTC “is poorly designed, duplicative of more than 100 similar federal programs and tax credits, and has become a goodie-bag for big banks and corporate America at the expense of the taxpayers.”
Coburn says he would prefer that Congress simply let the program expire, which he takes care to note would neither affect existing projects nor prevent new ones from being funded through previous years’ allocations.
However, “if Congress does extend the credit,” he says, “a number of reforms could be considered, including increased data collection and transparency requirements,” which would allow lawmakers and taxpayers to form an accurate judgment of the program’s effectiveness.
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