Two years in Washington have started to make me feel jaded. I’ve come to expect that even nobly conceived laws will be manipulated and distorted for private ends. But once in a while I hear a story that gives me the queasy feeling that I’m nowhere near cynical enough. Such is the case with the tale of the paper industry and the alternative-fuel tax credit.
Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry–handsomely–to use more fossil fuel. “Which is,” as a Goldman Sachs report archly noted, the “opposite of what lawmakers likely had in mind when the tax credit was established.”
The massive tax subsidy has barely been reported in the press, but it’s caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. “Everybody’s talking about it,” paper industry analyst Brian McClay told me. “In the US and elsewhere in the world–in Canada and Brazil and Chile and Europe.”
On March 24 International Paper (IP) announced it had received its first check from the IRS for a one-month period this past fall. The total? A whopping $71.6 million. “It’s probably close to a billion a year of cash,” McClay said. “If you look at the economics of this business, to make that kind of money today you’d have to be on another planet.” IP’s stock rose 12 per-?cent on the news.
The origins of the credit are innocent enough. In 2005 Congress passed, and George W. Bush signed, the $244 billion transportation bill. It included a variety of tax credits for alternative fuels such as ethanol and biomass. But it also included a fifty-cent-a-gallon credit for the use of fuel mixtures that combined “alternative fuel” with a “taxable fuel” such as diesel or gasoline.
This kind of behavior is going to add up. The paper companies may need some assistance, but getting it in a way that is underhanded, gives yet another black eye to the idea of helping companies that genuinely need some stimulus funds. It doesn’t matter that it started under Bush. The public is obviously already past outrage fatigue when it comes to recent history. What matters is that Congress hasn’t been using the kind of oversight it should be using.
In Larry Summers, Tim Geithner and Wall Street’s Ownership of Government, Glenn Greenwald posts this stunning take on the Obama economic team,
Rubin, Summers and Greenspan succeeded in inducing Congress — funded, of course, by these same financial firms — to enact legislation blocking the CFTC from regulating these derivative markets. More amazingly still, the CFTC, headed back then by Born, is now headed by Obama appointee Gary Gensler, a former Goldman Sachs executive (naturally) who was as instrumental as anyone in blocking any regulations of those derivative markets (and then enriched himself by feeding on those unregulated markets).
Just think about how this works. People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting. When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal.
I meant to write this yesterday and in a rush forgot. If there were just a couple of these Wall St insiders one could make the case they could be of use in the sense of being insiders. They were part of the reason Wall St broke down, if not by direct deed then by fighting against responsible regulation. But we don’t just have a couple of the lesser evil insiders, its all insiders. The administration obviously doesn’t want Krugman for whatever reason, but there are plenty of more progressive consumer, advocates economists and financial gurus out there that are better advocates for the average Joes and Janes.. Even if a year or two from now it looks like the banks are getting better and unemployment figures are looking better, President Obama will still have rewarded some people for acting like greedy rats during their public careers. You know, those years they collected a government paycheck. Put another way, Obama has demonstrated, with the exception of his Republican-lite economic team, that he likes a variety of political voices in his administration. Yet, progressives have no voice at the economic table.