The Tax-Subsidy Waltz

By Kevin D. Williamson

Sunday, April 04, 2021

 

Here is a tragicomedy in three parts:

 

1.      Politicians enact tax credit that benefits Corporation X.

 

2.      Corporation X accepts tax credit.

 

3.      Politicians are scandalized by Corporation X’s tax filings.

 

The New York Times is inviting its readers to be shocked and appalled by the fact that dozens of big companies have paid no federal business-income tax over the past three years in spite of taking in lots of money. At the top of its naughty list is Duke Energy, which made just under $8 billion over the past three years and had an effective corporate income-tax rate of . . . negative 15.5 percent. One big reason for that is green-energy subsidies of the kind proposed by the very same progressives who complain about the tax bills of companies such as Duke. Duke benefited from “bonus depreciation” arrangements that reward green-energy investments. As Duke points out in the Times report, that doesn’t actually eliminate Duke’s tax liability, but only defers it, leaving Duke with some $9 billion on its tax tab that will have to be paid at some point in the future.

 

Other energy companies with multi-billion-dollar incomes paid no tax in recent years for similar reasons, mostly green subsidies. Others relied on provisions of the CARES Act that allowed businesses (many of them beaten down by the coronavirus lockdowns) to apply losses from 2020 to their tax filings from previous years, erasing taxable income. Contrary to what you hear from such specimens as Senator Elizabeth Warren (D., Mass.), these are not “loopholes” being exploited — taking taxable income off the table to subsidize corporations during the recent economic turmoil was precisely the point of the CARES Act’s tax provisions. You may not like that as a policy, but it is a policy, not an accident that some clever tax lawyer figured out how to utilize. The same is true of the green-energy tax subsidies — if you didn’t think they were going to be used to lower the tax bills of energy companies, what in hell did you think they were for?

 

And here comes the next act in this sorry performance.

 

Even while they complain about corporations and the wealthy, Joe Biden and congressional Democrats are planning a sweet handout for Elon Musk, net worth $164 billion as of this writing. Sure, Musk has seen some hard times lately: He was, briefly, the wealthiest man in the world, and now he has fallen all the way down to No. 7. But Musk’s situation does not exactly tug the heart strings, and neither does the situation of shareholders in Musk’s electric-automobile company, Tesla, who have had a wild but profitable ride.

 

But Biden & Co. are planning a big push to help electric-vehicle manufacturers, including the expansion of $7,500-per-vehicle tax subsidies for consumers who choose electric cars. That probably won’t help Tesla or GM directly: Under the current arrangement, the credits are phased out after 200,000 vehicles are sold, a milestone Tesla and GM have long since passed, while raising the limit to 600,000 vehicles, as Democrats are contemplating, would still exclude Tesla, which delivered half a million cars in 2020 alone. It is possible that the congressional sausage-making will produce a tax credit that directly subsidizes Tesla buyers, but even if it doesn’t, the infrastructure plan is full of goodies for Tesla and other favored automakers, including billions in grants to build charging stations and billions more in subsidies for battery research and manufacturing. Senate majority leader Chuck Schumer (D., N.Y.) has proposed $4,500 trade-in subsidies for consumers who swap their petroleum-powered cars for U.S.-made electric ones, which could give Tesla a leg up over competitors such as Nissan.

 

Here’s a safe bet: If the Biden “infrastructure” bill puts tax-credit money on the table to subsidize businesses that engage in battery research and development, Tesla is going to be one of the companies that benefits. And — this should be easy enough that even Joe Biden can follow along — federal tax-credit programs designed to reduce the tax burdens of American corporations probably will . . . reduce the tax burdens of American corporations.

 

And there’s a 103 percent chance that Democrats will vote for these tax subsidies this year and then complain about them next year.