Mar 05 2013
The last time the nation’s tax code was overhauled, in 1986, Congress tried to end a big corporate giveaway.
But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.
A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of the Goldman Sachs Group and the Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.
In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which issued bonds with a total face value of $2.6 billion, the analysis showed. Last year it reported a profit of $26 billion.
At a time when Washington is rent by the politics of taxes and deficits, select companies are enjoying a tax break normally reserved for public works. This style of financing, called “qualified private activity bonds,” saves businesses money, because they can borrow at relatively low interest rates. But those savings come at the expense of American taxpayers, because the interest paid to bondholders is exempt from taxes.
What is more, the projects are often structured so companies can avoid paying state sales taxes on new equipment and, at times, avoid local property taxes. While some deals might encourage businesses to invest where they might otherwise not have invested, there are few guarantees that job creation or other economic benefits actually occur.