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  • Memo to Climate Skeptics: You’re Losing, Change Strategies

Memo to Climate Skeptics: You’re Losing, Change Strategies

William L. Kovacs

December 2023

Memo to Climate Skeptics: You’re Losing, Change Strategies

(Part I of III parts)

As 90,000 corporate and environmental elites land their private planes in Dubai to be exquisitely wined and dined at the UN Climate Conference (“COP 28”) from November 30 to December 12, 2023, they will be demanding more reductions in fossil fuels and trillions more dollars for whatever controls they want to impose on humanity. Their newest demand is no more cows, no more meat. This is on top of restrictions on thousands of products. Twenty-eight years of COP parties demonstrate the persistence of the movement to shut down human progress. Those opposing this insanity argue the facts, science, and common sense. These are useless arguments in a world where tweets, influencers, money, and misinformation rule. It is time to challenge this brave new world of hypocrites at its source of power.

The Progressive Left is winning the climate war it should be losing.

Those skeptical (“climate skeptics”) of the Progressive Left’s claim that the world is coming to an end due to manmade greenhouse gas emissions are a dwindling group. They are fighting the good fight with few supporters and little financial assistance. To prevail, the skeptics need to gain visible support from common-sense citizens who are unwittingly impacted by the increased costs of green technology. To achieve this feat, climate skeptics should move away from their current lobbying strategy that relies on well-documented science and technology briefing papers that discuss the technical inadequacies of the green agenda and focus on the adverse economic and community impacts of the Biden administration’s policies.

The transition from regulatory oppression to costly giveaways.

The Progressive Left’s change in its climate lobbying strategy between the Obama and Biden administrations illustrates why the Progressive Left is winning the climate fight to limit fossil fuels to “stop the rise of the oceans.”  While both administrations initiated aggressive attacks on the use of fossil fuels, their strategies are radically different. Obama went the traditional route of complex legislation to regulate most industries in the economy. The Biden administration gives away lots of money, which makes all the difference.

The climate skeptics in 2008-2016 organized the business community and used data in eye-catching, easy to understand charts to illustrate the complexity, costs and burdens of Obama’s legislative and regulatory agenda on business and citizens. By explaining how business, jobs, citizens, and communities were adversely impacted, the skeptics defeated Obama’s major proposals in Congress, even in years when Democrats controlled both Houses of Congress.

The Biden administration changed strategies in 2021. It recognized giving away taxpayer money is a proven path to the heart of the business community. Giving away money for a “public purpose” is also unreviewable by the courts. As such, it is easier for spending legislation to pass. Moreover, it also avoids a regulatory conflict with industry, as happened to Obama’s Clean Power Plan. Using giveaways, Biden enacted the Inflation Reduction Act (“IRA”) to build more green technology than can be absorbed by the grid or afforded by consumers. Additionally, by placing such a massive amount of green technology into the economy, Biden makes reversing his policies very difficult.

Beginning in 2021, climate skeptics challenged Biden’s climate agenda by developing excellent policy papers explaining the technological flaws in achieving zero emissions with green technology. Unfortunately, for the climate skeptics, business prefers subsidies over well-reasoned technical reports that might upset their gravy train., Moreover, most common-sense citizens do not read technical policy papers, nor are they persuaded by them.

American business is Congress’ Pavlov’s dog, and tax credits are its treats.

With a massive national debt approaching $34 trillion and annual combined deficits and interest payments approaching $2 trillion, Congress fails to understand how it is wasting the taxpayer’s money. Worse, when it spends by enacting tax expenditures, it has no control over how much is wasted.

Tax expenditures are defined by law as “revenue losses attributable to provisions of the Federal Tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liabilities.” When Congress enacts these expenditures, it creates public policy by changing behavior, i.e., rewarding corporations that do what the government wants done. It transforms American businesses from defenders of competitive markets into the government’s Pavlov dog. The government offers a treat, and business gets rewarded if it does what Congress wants done.

Unlike policy determinations that must be authorized and subsequently funded by Congress, tax expenditures are not viewed as direct spending programs since Congress places them outside of the budget process. As such, they are an unlimited charge on the federal treasury since anyone who conforms to the government’s desires gets credits that reduce their income tax. For example, taxpayers purchasing an electric vehicle can receive up to $7,500 in credits to reduce their federal income taxes.

Additionally, the IRA includes a $ 400 billion loan guarantee fund that allows green energy developers to secure lower interest rates on loans that the federal government guarantees in case of default. These unfunded liabilities are also off budget.

The cost of dog treats is expensive.

The IRA gives tax credits for activities legislatively deemed to reduce emissions causing climate change. Those activities include battery storage, energy efficiency, residential green energy, hydrogen, carbon capture, solar and wind generation, and electric vehicles. The Congressional Budget Office (“CBO”) initially estimated these tax credits would cost the treasury $391 billion between 2022 and 2031.

The IRA tax credits for anything “green” incentivized more pigs to show up at the trough than CBO estimated. Within months after the program started, Goldman Sachs raised its estimated cost of the credits to $1.2 trillion for the same period. The original forecast missed the cost of the credits for electric vehicles by $379 billion; energy manufacturing, $156 billion; renewable electricity production, $82 billion; energy efficiency, $42 billion; hydrogen, $36 billion; biofuels, $34 billion; and carbon capture, $31 billion.

These federal tax credits create few jobs. “Total [cost for each green job created] range from $ 2 to $ 7 million per job.” Unfortunately, the jobs created will have an average annual wage of $45,000. Where have all the billions gone? Into corporate pockets everywhere!

Tax credits are only one type of government gift. The tax code is stuffed with over 2000 subsidy [gift] programs. Companies that receive the gifts are given a competitive advantage over non-recipients in the market. Farming is an excellent example. The federal government distributes $30 billion a year in subsidies to the farm industry. “The largest 15 percent of the farm businesses receive 85 percent of the total farm subsidies.”

The Center on Budget and Policy Priorities estimates that in 2019, IRS tax expenditures carried a value of $1.3 trillion for the recipients. Additionally, the IRA tax credit adds another $1.2 trillion. None of these $2.5 trillion tax credits is part of the appropriations process. No wonder Congress cannot control spending. These same companies also received $3.5 trillion in subsidies in 2020 from state and local governments.

As long as green technology is infused with unlimited tax credits, businesses will take the credits until the government stops giving them or the project suffers losses the government will not cover. It is up to the skeptics to educate the public on these costs.

William L. Kovacs has served as senior vice president for the U.S. Chamber of Commerce, chief counsel to a congressional committee, chairman of a state environmental board, and a partner in law D.C. law firms. His book Reform the Kakistocracy received the 2021 Independent Press Award for Political/Social Change. Kovacs also led the business coalition’s lobbying activities against Obama’s legislative climate proposals. He can be contacted at [email protected].

 

 

 

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  • Tax Expenditures & Cardsharps Deal From Bottom of the Deck

Tax Expenditures & Cardsharps Deal From Bottom of the Deck

William L. Kovacs

October 2023

Tax Expenditures & Cardsharps Deal From Bottom of the Deck

Without being a card player, it can be difficult to spot a cardsharp who cheats by manipulating cards to serve their own interest. Without being a tax expert and certified accountant, it is difficult to spot how federal tax expenditures manipulate government spending for friends and supporters.

Cardsharps use sleight of hand, false shuffles, and dealing from the bottom of the deck to manipulate the cards to cheat people out of their money. Congress and the White House use the appropriations process and tax code (“tax expenditures”) to cheat taxpayers out of trillions. Tax expenditures reduce federal tax revenue by $1.3 trillion annually. Every tax expenditure (gift) benefits the recipient and punishes the non-recipients who must pay for the lost revenue.

The most recent example is the Inflation Reduction Act (“IRA”) which went into effect January 1, 2023. The Biden administration told the public the new law would reduce inflation and achieve deficit reduction. Staying with the card game analogy, the many types of tax expenditures are merely different types of playing cards.

The various types of tax expenditure cards provide direct subsidies to specific individuals and industries in the form of loans, loan guarantees to keep bankrupt industries operating, tax breaks in the form of deductions, lower marginal rates for specific financial activities, the elimination of fees or penalties and the most dangerous – tax credits.

In the case of the IRA, the federal government gives taxpayers credits against their tax liability if the taxpayers do what the government wants done. The tax credit is an unlimited charge against the federal treasury since anyone who conforms to the government’s desires gets the credit to reduce their income tax. For example, taxpayers purchasing electric vehicles receive up to $7,500 in credits to reduce their federal income taxes by an amount equal to the credit.

The IRA gives the credits for activities that are asserted to reduce emissions causing climate change. Those activities include battery storage, energy efficiency, residential green energy, hydrogen, carbon capture, solar and wind generation, and electric vehicles. The Congressional Budget Office (“CBO”) initially estimated the tax credit would cost the treasury $391 billion between 2022 and 2031.

The IRA tax credits for anything “green” incentivized more pigs to show up at the trough than CBO estimated. Within months after the program started, Goldman Sachs raised its estimated cost of the credits to  $1.2 trillion for the same time period. The original forecast missed the cost of the credits for electric vehicles by $379 billion; energy manufacturing, $156 billion; renewable electricity production, $82 billion; energy efficiency, $42 billion; hydrogen, $36 billion; biofuels, $34 billion; and carbon capture, $31 billion.

Most troublesome is the fact that a trillion-plus dollars of tax credits are creating few jobs.  “Total [cost for every green job it created] range from $ 2 to $ 7 million per job.” Unfortunately, the jobs created will have an average annual wage of $45,000. Where have all the millions gone?

While tax credits are the most abusive form of government gifts, the entire tax code is stuffed with over 2000 subsidy [gift] programs. Every federal tax expenditure, or gift, interferes with the entire market to which it is directed. Companies that receive the gifts are given a competitive advantage over non-recipients in the market. Farming is an excellent example. The federal government distributes $30 billion a year in subsidies to the farm industry. “The largest 15 percent of the farm businesses receive 85 percent of the total farm subsidies.”

Through the aggressive use of tax expenditures, the federal government controls what is manufactured, the energy used in the process, the type of research conducted, what is mined, medical benefits received, deductible building expenses, the cars purchased, the development of communities, and many more. There are so many tax expenditures that the Department of the Treasury catalogs them in large groupings: National Defense, International Affairs, General Science, Space and technology, Energy, Natural Resources & Environment, Agriculture and Housing, Transportation, Community and Regional Development, Education, Training, Employment and Social Sciences, Health, Income Security, Social Security, Veterans Benefits, General Government, Interest on Bonds.

The Center on Budget and Policy Priorities estimates that in 2019 IRS tax expenditures carried a value of $1.3 trillion for the recipients. The top 1% of the income earners received 24.1% of the value, and the top 20% of income earners took 58.8%. The IRA adds another trillion to the free lunch pie.

The most deceitful aspect of tax expenditures is they do not compete for appropriations; they are just taken by whoever is willing to conform their business or lifestyle to the federal government’s wishes. This brings the discussion back to today’s budget fights over how much money to spend or cut. Consider the consequences of exempting the $1.3 trillion in green tax credits from the budget fight. While Congress fights over cutting billions from the deficit, the green industry’s tax credits are exempt from the cuts. The green industry laughs all the way to the bank.

There are a few simple solutions. Over a decade ago, a Missouri State Senator, Emily Kilmer, proposed legislation that would require every state tax credit program in Missouri to be limited to the amount of tax credits authorized by the legislature that fiscal year.

This simple solution would put tax expenditures into the same category as all appropriations, thereby giving the legislature control over all aspects of state spending. True to political form, the Missouri legislature never moved forward with the proposal. This type of law would work very well at the federal level. It would actually make federal appropriators responsible for all their spending. It would make budgeting and appropriations more transparent since anything with budget implications would be on the table for being funded, cut, or eliminated. Every person and interest group would be publicly fighting over the food in the same trough.

Another option is to repeal the 8-million-word tax code and replace it with the 1913- four-page Form 1040. It had few deductions and low rates but required everyone to pay some tax. Another benefit of this simple approach is it captures a greater amount of tax owed by closing the “Tax Gap.”  The IRS defines the tax gap as the difference between true taxes owed for a given tax year and the amount that is paid. The gap is caused by the under-reporting of income, non-filing, and tax evasion. While the exact amount is unknown, the IRS estimates it to range from $574 to $700 billion annually. A complex tax code invites under-reporting and manipulation, whereas a simple tax code fosters greater participation and prevents large-scale manipulation due to its transparency.

By requiring tax expenditures to be subject to the same rules as all appropriations and closing the tax gap, the federal government could achieve savings of well over a trillion dollars annually. It’s time for the federal government to stop dealing from the bottom of the deck and start fair dealing with its citizens.