A Sweetheart Deal for Big Business « The Washington Independent
As we mentioned here last week, the recently passed jobless benefits extension, though packaged as a boost for Main Street, provided many times more funding to the nation’s businesses, including the largest corporations. Specifically, the law allows companies to recover already-paid taxes by applying recession-year losses to income made over the past five years. The Joint Committee on Taxation estimates the change will shower businesses with $33 billion in tax rebates next year.
It gets better.
Over the weekend, The New York Times’ Gretchen Morgenson dug deeper to discover that some of the businesses poised to benefit most from the tax rebates are home builders who are not only flush with cash, but also represent “some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.”
[D]ropping helicopter money on the home builders — the folks who massively overbuilt in community after community — seems decidedly less urgent (unless you are one of these companies, of course). Given that the supply of housing far outstrips demand, it is unlikely that these companies will use these tax breaks to hire workers (unless they go into a completely new line of business).
“I AM surprised that home builders are getting hundreds of millions of dollars given that many have very strong balance sheets,” said Ivy Zelman, chief executive at Zelman & Associates, a research firm. “We question the public policy decision to gift home builders with capital that many will not use to create jobs, since they admit that job growth will be dependent not on capital, but on improving demand.”
Among the beneficiaries of the taxpayers’ largesse, Morgenson points out, will be Pulte Homes, “which will receive refunds exceeding $450 million under the new law, [and] has $1.5 billion in cash and cash equivalents on its balance sheet, according to its most recent financial statement.”
Standard Pacific, another recipient, “is poised to reap cash refunds of $80 million under the new tax break,” Morgenson writes. “According to its most recent financial filing, Standard Pacific held $523 million in cash and cash equivalents.”
Ken Campbell, the chief executive of Standard Pacific, said the money would allow his company to continue buying land. “Will we build more houses or will there be more people employed in the first quarter? Probably not,” he said. “Will employment accelerate when the market starts to grow? It will.”
Translation: The builders will sit on their new land acquisitions in hopes that the housing bubble at the root of the economic turmoil re-inflates. Meanwhile, they won’t be hiring.
So why shower these businesses with millions of dollars in the name of creating jobs if the money won’t really create jobs? Morgenson has a pretty sound theory.
Securing this tax break was a top priority for home builders, lobbying records show. The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. Last year, the industry spent $8.2 million lobbying.
Some Democrats readily conceded that they could have passed the unemployment benefits, which totaled $2.4 billion, without the business-friendly sweetener, but nonetheless agreed to the tax rebates “as a means of greasing the skids,” as Sen. Tom Harkin (D-Iowa) said at the time.
There’s some evidence that Democratic leaders aren’t exactly proud of their accomplishment. Although Senate Majority Leader Harry Reid (D-Nev.) hailed the bill as a necessary stimulus, his statement released after the bill’s passage avoided any mention of the business tax rebates.