Crony Capitalism

Congress Readies Another Round of Crony Handouts

Here we go again.


Here we go again. We're approaching another deadline to pass a government spending bill or risk a government shutdown. Legislators routinely manufacture this sort of "crisis" to ram through provisions that wouldn't survive scrutiny standing on their own. Congress is reportedly likely to push the budget deadline into December, but whenever the next full funding bill is finally taken up, there will inevitably be an effort to load it up with crony handouts.

At the top of the wish list will be "tax extenders." These are tax provisions that generally bestow benefits on particular business interests, but they expire every year or so. They must be renewed regularly if the benefits are to continue.

Not all tax extenders are corporate favoritism. Some alleviate economic distortions in the tax code. But most of those provisions were either mooted by the 2017 tax reform or have already been made permanent. What is left, by and large, is cronyism, especially for various forms of renewable energy.

There are a number of negatives associated with the system of temporary tax extenders beyond the fact that many of them consist of corporate handouts and other bad policies. For one, the current list of tax extenders includes provisions that have been expired since 2017 or 2018. Often when this happens, Congress makes their renewal retroactive. This practice only exacerbates the economic distortions and uncertainty surrounding extenders. Tax accountants, however, love it.

Temporary extenders also produce a wasteful lobbying bonanza as businesses seek to ensure that their benefits are renewed. This system is terrible for everyone except the direct beneficiaries of the largesse.

If any of the current tax extenders happen to be good policy, they should be made permanent. The rest should be allowed to die for good.

Beyond extenders, another tax provision to beware of at this time of year is the electric vehicle tax credit, which is in the process of phasing out. It's limited by the number of vehicles sold on a per-manufacturer basis, so it's not ending all at once, but two of the top sellers in the industry have already surpassed the current threshold.

Yet, just as with extenders, there's a lot of pressure to keep this gravy train rolling. Automobile retailers obviously want it. And for both political and ideological reasons, many members of Congress are also on board. Two weeks ago, a coalition of 166 Democrats in Congress signed a letter to House leadership advocating an extension of the electric vehicle tax credit as part of a list of other green energy credits and handouts.

Working against their effort is the fact that the benefits of this tax break go primarily to wealthy individuals who are better able to afford the more expensive electric vehicles. A 2016 Congressional Research Service report found that 78 percent of those tax credits went to people with adjusted gross incomes of $100,000 or more, and 7 percent went to people earning over $1 million. A later analysis by the Pacific Research Institute confirmed these findings, including that over 99 percent of the credits went to households earning above $50,000.

Granted, in their continued fight to remove the cap put on the state and local tax deductions as part of tax reform, Democrats have proven that they have no problem with handouts to the wealthy if they perceive that it serves a broader ideological purpose.

But even they must admit that it doesn't look good when their top presidential candidates are now waging class warfare and pushing wealth taxes.

Nor can anyone credibly claim that this tax credit serves a greater good. A paper published earlier this year by economists Benjamin Leard, Shanjun Li, and Jianwei Xing showed that electric vehicles primarily replace newer gas-powered vehicles that are already relatively fuel-efficient, not older vehicles that generate more pollution. These researchers also find that 70 percent of the buyers getting the credits were going to purchase an electric vehicle anyway.

There is, in other words, every good reason to let the electric vehicle tax credit expire as intended. Congress should likewise resist its impulse to keep renewing corporate handouts by reviving expired tax extenders.


NEXT: Federal Government Can't Just Allow 3D Gunmaking Software To Proliferate Without a License, Federal Judge Declares

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  1. Thank goodness. I was afraid that the impeachment process would distract Congress from their most important duties.

    1. Question here is will Senator McConnell let it pass. House has been working this whole time and has passed a number of bills.

  2. Ukraine is crony to you?
    How about I take your board and smash it!

  3. Those campaign coffers aren’t going to fill themselves.

  4. Maybe McConnell/Trump will shut down the federal government again.

    They should go longer this time. Nobody even remembers that the federal gov was shut down for 35 days Dec 2018-Jan 2019.

    1. I remember. That shutdown was because Trump was looking for MORE funds; specifically for his border wall.

      Trump’s history so far as President has showed no restraint on spending. I don’t expect it to be any different this time, especially heading into an election year.

      1. Well said. This is probably the biggest disappointment and downside to the Trump administration. Trumps actions as president fall on a wide range from excellent to terrible. I wish his stance on the budget would have been much less on the terrible side (not that I’m surprised it wasn’t). He’s the one politician who probably could have gotten away with actually saying “fuck you, cut spending.”

        1. But on the other hand, one reason he was popular was because he promised not to touch the biggest part of the budget, aka the entitlements.

          1. Yeah. Sadly, no one’s probably safe to come between the mob and their bread-and-circuses.

            1. Exactly. I don’t see how this can end well. Even before, when reforming SS meant that current and near-future recipients would be guaranteed their payments (and the program saved from default), the masses screamed that it was “taking away their SS.”

              1. Tyler Cowen promotes raising the payroll tax to (something like) 15% to completely save the program. That is where we are. It is politically impossible to touch these federal ponzi schemes. The wealthier democrats that lost their SALT deductions are the first ones to bitch about how much money they send to the feds, while they would be the first ones to bitch (for political power) about a feather landing on those entitlements.

    2. We all remember and your disgraceful gaslighting attempt to try and convince us that we don’t is pathetic! But yeah, I agree it should go way way longer if it does.

  5. Working against their effort is the fact that the benefits of this tax break go primarily to wealthy individuals who are better able to afford the more expensive electric vehicles.

    How does it “work against their efforts” that the benefits of tax breaks go primarily to wealthy individuals who are better able to afford generous campaign donations? That’s the reality of all these tax carve-outs, not just electric vehicle subsidies. Everybody gets to claim to support austerity in principle while engaged in special pleading for themselves, but the special pleading gets a more sympathetic hearing if it’s accompanied by a big fat check.

    1. I think she means the stated efforts of the Democrats. Basically to tax the rich to support the poor and middle class. The point being that they are cutting taxes on the upper-middle to rich classes while saying the opposite on the campaign trail.

      Of course it wouldn’t be the first time that the Democrats publicly berated the very evil rich people that they are giving handouts to and accepting fat donations from behind the scenes.

      1. Just remember Asshat II, it’s the upper-middle to rich classes (or in your words… the very evil rich people) that are the ones who are actually funding unconstitutional USG activities with 19%-average income taxes and 7.65% payroll taxes.

        1. I don’t think he is disagreeing with that. He’s pointing out hypocrisy.

        2. “(or in your words… the very evil rich people)”

          It was heavily implied that those are the Democrats’ words, not Leo’s own opinion.

        3. You’re not from around here, are you?

          1. I suspect his prog-alert program went off when I said something critical of Trump above. To 90% of Americans there are only liberals and conservatives.

  6. Maybe the democrats will bring us a Christmas gift of impeachment and Trump can give us a gift of a longer government shutdown. Win win!

  7. I think the author made a good case for eliminating some things like electric car credits. What help this along is for Republicans to offer up something they like in return. I am sure we can old tax credits going to some obsolete fossil fuel power plants. Maybe a one for one exchange. I might suggest ethanol subsidies but that will not happen with an election coming in 2020.

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  9. Geez Doctor DeRugy….Maybe you could write about crony journalism?

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