Senator Tom Coburn (R-Okla.) released a report this week detailing how corporate interests and big banks are abusing a tax incentive designed to empower poor Americans.
During the Bill Clinton Administration, Republican lawmakers created the New Markets Tax Credit to provide incentive for banks to finance projects that would create new markets in financially struggling communities.
But Coburn’s latest waste-illuminating report, “Banking on the Poor,” finds that the program is being used by big banks like Goldman Sachs, Wells Fargo and SunTrust, Hollywood and a number of corporations.
“This tax credit intended to benefit the poor is instead lining the pockets of the well-off, such as big banks and other private investors that claim more than $1 billion in NMTC annually,” Coburn said. “Because it is funded by taxing the labor of Americans, NMTC is essentially a reverse Robin Hood scheme paid for with the taxes collected from working Americans to provide pay outs to big banks and corporations in the hope that those it took the money from might benefit.”
NMTC works through a complicated process—but the crux of the scheme is incentivizing private investment in projects that will increase employment or provide beneficial services to the public by offering lavish tax subsidies to investors.
According to Coburn, 40 percent of the current investments are made by banks. The report outlines how those financial institutions are cashing in on tax credits equaling 39 percent of NMTC investment for 7 years after scheming to maximize profits at taxpayer expense.
Many banks have set up their own CDEs in order to receive tax credit allocations from the Treasury, making them both the recipient of the tax credits and the lender. Many of the top CDEs receiving tax credit allocations are subsidiaries of major banks including Bank of America, JP Morgan Chase, Wachovia (now Wells Fargo), and SunTrust banks (see Appendix I). From 2003 to 2013, Bank of America’s CDE was awarded $696 million in tax credit allocation authority, while $450 million went to Chase Bank, $488 million to Wachovia, and $428 million to Sun Trust. In the latest round of NMTC allocations alone, Chase announced it was awarded a $60 million allocation and Sun Trust was awarded a $43 million allocation.
Along with setting up their own CDE’s, banks invest in other CDE’s, which provide them with tax credits in return for an investment. Investors in the National Development Council, a CDE that has received $486 million in tax credit allocation authority include Citibank, Citizens Bank, Deutsche Bank, Dudley Ventures, JPMorgan Chase, Key Bank, PNC Bank, Sun Trust, Wells Fargo, and U.S. Bank Enterprise Community Partners, another CDE, has worked with U.S. Bank, Bank of America, JP Morgan Chase, and others on over 55 developments.
“While Washington politicians tout the program’s goal is to put more money into the hands of businesses in struggling communities, the real beneficiaries are Wall Street banks, the CDE’s, and other large investment enterprises,” Coburn said.
The lawmaker also outlined how NMTC funds are often used on frivolous projects in areas from Beverly Hills to the Hamptons, where the taxpayer-funded economic boost isn’t even needed. Coburn cites the Congressional Research Service in noting that the definition of qualified low-income communities qualifies “virtually all of the country’s census tracts [neighborhoods and communities]” to NMTC eligibility.
The abuses of the NMTC funds listed in the budget hawk’s report include:
- A financially-failing health center in Desert Hot Springs, California, complete with a $65,000 NMTC funded outdoor sculpture
- A $13.5 million contribution leveraged using NMTCs for lighted water fountains in the Nation’s Capital
- The city of St. Louis offered $10 million in financing through federal New Markets Tax Credits to a Fortune 500 company, Peabody Energy Corporation, to keep their business where it is, rather than move 10 miles outside of downtown St. Louis
- $40 million in tax credits to help SunTrust and Wells Fargo invest in a dolphin show at the Atlanta aquarium.
Coburn said that, in addition to underwhelming success at fulfilling its intended purpose, the NMTC duplicates other wasteful government programs at a cost of $6.5 billion to taxpayers each year— the report even provides examples of NMTC funding being used along with money from programs it duplicates.
“When government picks winners and losers, the losers usually end up being taxpayers,” Coburn said. “Washington should reduce federal taxes on working Americans and all business owners who create jobs by eliminating tax earmarks, loopholes, and giveaways like the New Markets Tax Credit.”