While brainstorming ways to overcome the federal debt and future deficits, the U.S. Senate’s Gang of Six came up with the suggestion that American workers give up — either partially or entirely — certain tax exemptions that cover mortgages, health insurance, retirement investing and charitable giving.
That’s all well and good. Income tax credits, incentives and the like aren’t good government due to their inherent unfairness. Some folks even classify them as a form of welfare. They are definitely a transfer of wealth because the Treasury has to overcome the lost revenues from the class of individual afforded financial advantage by transferring the burden of revenue to another.
But, what’s good for the goose is good for the gander. And, that’s where the Gang of Six goes wrong.
It’s not surprising that while tearing into these long-held rewards for the middle class, they only briefly mentioned cutting “some” tax breaks for corporations and were non-specific about what those might be. Considering how specific they were about what benefits should end for individuals, their silence speaks volumes about how the balance of inequity tips further in the favor of the large corporations.
Such unfairness is grossly apparent in the case of General Electric. It was bad enough that GE paid no corporate tax on $5.1 billion in U.S. profits in 2010, but, they also had the gall to claim a $3.2 billion tax credit from the federal government.
So, how do the big boys do it? What sorts of credits (corporate welfare) allow them to shed their responsibility to America?
Well, here are just a very few of the many that exist in today’s Tax Code:
The Production Tax Credit offers a 2.2 cents-per-kilowatt-hour tax credit for the first 10 years of a wind farm project. Not surprisingly, this $5 billion giveaway is the only way windmills can produce electricity that’s actually price-competitive.
The Ethanol Tax Credit costs the U.S. Treasury $6 billion per year. This credit is extended to blenders at a rate of 45 cents per gallon. The domino effect of this incentive is astounding, as it is complicit in rising prices at the grocery store as we substitute food corn for fuel corn.
The Research and Development Tax Credit has been around since 1981 and gives U.S. manufacturers and pharmaceutical companies a supposed edge by allowing them to write off many facets of the engineering process. It keeps from the U.S. Treasury $7 billion annually. One cannot help but look at the credit with concern over its unfairness: Why favor R&D when it’s a normal — and required — part of doing business, just as sales and marketing are?
The Domestic Manufacturing Tax Credit, given as a gift to the oil industry by the Bush Administration, allows oil companies to deduct 9 percent of their income from extraction done on U.S. land or water. That 7-year-old credit saves oil companies $1.8 billion per year. Once again this highlights the injustice of tax credits: Unlike a factory, oil fields cannot be moved overseas, so why afford only them such a benefit?
Then there’s the highly unusual Percentage Depletion Allowance that was created in the 1930s. It allows oil companies to consider oil in the ground as capital equipment (not a natural resource) and they can write off its anticipated depletion. This saves the oil industry $1 billion per year. Imagine if landowners asked to do this with their forests or farmers their soils. It just doesn’t make sense to write-off Mother Nature.
So, just like that, we have more than $20 billion in savings in only a handful of credits. If we analyzed the thousands of them on the books the total would be staggering; it’s in the hundreds of billions per year.
The system is so broken that BP claimed a $9.9 billion tax credit on its Gulf spill; yes, the same one that cost federal and state governments billions of dollars to mitigate, put thousands of coastal people out of work, and deeply affected wildlife of the region.
If a corporation can be rewarded for a disaster it created, it is no wonder that our nation is in a fiscal disaster. … Uncle Sam allows that same destructive behavior with our finances. Large corporations are afforded undue benefits by our government, and the strain that places on small businesses and individuals is too great to support our nation for the long haul.