Is the Obama Administration’s Section 1603 tax credit plan program creating any jobs? That’s what Frank Upton (R-MI), chairman of the House Committee on Energy and Commerce would like to know.
On March 15, 2012, Mr. Upton and House Sub-Committee on Oversight and Investigations Chairman Cliff Stearns (R-FL) sent letters to Secretary of Energy Steven Chu and Secretary of the Treasury Timothy Geithner expressing concerns about the accuracy of job creation data stemming from the tax credit plan and requesting additional information about jobs created and the process for vetting companies that received funding.
The plan, which is funded by the Treasury Department and administered by the Energy Department, reimburses eligible applicants for placing in service eligible energy property. The property must be used in a trade or business or held for production of income. The payments are either 10% or 30% of the basis of the property.
Examples of energy projects that qualify for reimbursements include large wind; closed-loop biomass facilities; open-looped biomass facilities; landfill gas facilities; and trash facilities. As of February 12, 2012, some 5,000 businesses have received approximately $10 billion. The chairmen base their skepticism on reports from the Congressional Research Service and The Wall Street Journal that question the difficulty in measuring green job creation.
President Obama is requesting funds in order to revive the program, which expired last December. The program was initially spawned by the American Recovery and Reinvestment Act of 2009.
The Wall Street Journal reported that although federal documents show 100,000 jobs were created by the Section 1603 program, the Journal’s investigation found companies actually laid off employees or even closed shop.
The Committee has given the Energy and Treasury departments until March 29th to respond to its request for information.
Probably one issue that should move to the forefront of policy is the role of government. The Obama Administration appears ready to directly fund private entities in the private sector. The pattern should not be surprising. The Administration set a foundation for this approach when it abandoned the market failure basis for regulation implemented by the George Bush Administration.
Under the Bush doctrine, agencies were to consider to economic returns, costs, benefits of any regulations.
When the Obama Administration took the White House, it did a 180 degree turn. Market intervention became per se valid, with no demonstration of economic benefit necessary before considering market intervention.
The Administration’s biggest policy schemes, the bailout of General Motors and Chrysler, and mandatory health insurance under the Affordable Care Act avoided the question as to whether or not the auto market and the insurance market failed to maximize consumer welfare.
For example, did the Obama Administration adequately make the case that the American consumer could not enter the automobile market in the United States and buy a vehicle? Would the exit of GM and Chrysler from the auto market have led to the destruction of the auto market? How do you define “American auto industry”? Was the market more important or the industry? Was the American automobile industry really dead?
Arguably, the Administration failed to go through the same analysis with health insurance. Is the American consumer’s ability to enter the market to purchase health insurance so inept that he or she needs extra prodding from the American government in the form of a mandatory requirement to buy insurance?
Now this lack of analysis is seeping into the Administration’s preference for a scheme that offers private companies grants for their intentions to put in place energy property approved by the U.S. government beforehand. Not only has the Administration failed to consider whether the extension of the Section 1603 program will promote economic growth, there is no indication or argument that the program helps to reduce consumer welfare by reducing prices or increasing competition.
And if the Administration is to continue its sales pitch that the Section 1603 tax credit plan creates jobs, sooner or later it will have to seriously incorporate into its polices a quantifiable showing of job creation, economic growth, and consumer welfare benefits.
We will have to wait on the March 29 responses by Energy and Labor to explain where the jobs and growth are.