Thursday, April 09, 2009

Unimaginable Stupidty

Only in Oregon. Things look different here. We love dreamers.

We especially love government bureaucrats and government programs that flush millions of public funds down the toilet.

Here's the deal, as detailed in today's Portland Tribune article. The Oregon Business Energy Tax Credit program gives tax credits to businesses that invest in various energy saving projects, everything from hybrid vehicles to replacing windows.

Now, this in itself is a waste of money, because if these investments actually paid for themselves in terms of the energy they saved, there wouldn't be a need for a tax incentive to do it. But let's leave that aside for a moment.

The REAL waste of money comes because the program also gives a tax credit to government agencies that make these types of investments. What's that you say? Why would a government agency need a tax credit? They pay no taxes!

Exactly! So what do the agencies do with the credits? They sell them to businesses and individuals who have a tax liability, for a pretty darn steep discount. Tens of millions of dollars in these discounts happen every year as government agencies sell the tax credits granted to them by the same government.

How idiotic! To illustrate, let me use some numbers, hypothetical, but it will illustrate how stupid this is:
  • Gov't agency buys 25 hybrid vehicles for its fleet, total cost $1 million.
  • Dep't of Energy gives gov't agency $500K in "tax credits."
  • Gov't agency sells the credits to US Bank for $350K.
  • Loss to state in tax receipts: $150K

Now, if the state of Oregon wants to give incentives for its agencies to make these kind of investments (which are wrongheaded anyway, since they don't save as much money as they cost) it should just give the "credit" of $500K from the general fund straight to the agency's budget.

Then all the state would lose would be the dollars on the bad investment.

As it stands, we don't just spend this money inefficiently by giving these incentives, but we also get a "haircut" on the tax credits that amounts, cumulatively, to tens of millions of dollars in foregone tax receipts.

This could be changed OVERNIGHT by simply replacing the tax credit granted government agencies with a "budget credit" from the general fund. You would think, with all the caterwauling about the budget crisis, that they might want to make this simple change.

So who benefits? It is a giveaway to whoever buys the credits - mostly financial institutions, but the credits can be used by individuals as well. The rate of return on buying these credits at the discount and applying them to your tax liability is in the neighborhood of 20%!

Good job to the Portland Tribune for bringing this up.


OregonGuy said...

Thank you.

Living, as I do, in a market without a newspaper, these stories are hard to come by.

I will be checking to see if The Daily Astoria reports this story, but as I said, living in a market without a newspaper, I will not expect to see this story in print.

Anonymous said...

You can bet in a couple of weeks ECONorthwest will spit out another "study" that shows those tax credits will single handedly pull Oregon out of the recession.

Anonymous said...

This is truly ridiculous. The state government can't even move money from one pocket to the other without triggering a looting of the treasury.

Anonymous said...

How about the corporate pigs at the trough? Do the unions get to buy these credits, too? Oh, that's right, I almost forgot. Unions don't pay any taxes. That's just for the rest of us stiffs.

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