Tax Credit Program Offers Little to the Poor
August 15, 2014
In 2000, Congress passed and the President signed the Community Renewal Tax Relief Act, which included a program known as the New Markets Tax Credit (NMTC). The NMTC provides federal tax credits to companies that invest in businesses in low-income areas.
A new report from Sen. Tom Coburn (R-Okla.) exposes the reality behind the tax credit program: it is not benefiting the poor, rather it provides more than $1 billion in credits each year to large banks and investors.
Coburn explains how the program works:
- The Department of the Treasury provides annual funds to Community Development Entities (CDEs), which look for investors willing to purchase the tax credits. There are 5,780 CDEs across the country.
- Private investors receive a tax credit in exchange for an investment in the CDE, then the CDE takes the funds and invests directly in local businesses or projects located in low-income areas. Or, the CDE may use the funds to issue loans to these businesses.
But according to the Congressional Research Service, the program has defined "low-income" communities so broadly that "virtually all of the country's census tracts are potentially eligible for the NMTC." So, what projects are actually receiving funding, allowing banks to cut their tax bills with the credit? A few examples include:
- A Starbucks in Indianapolis, Indiana.
- A day spa in Alaska.
- A Milwaukee IHOP.
- Four law firms.
- A specialty tea shop in Columbus, Ohio.
Coburn gives the example of the Atlanta Aquarium, whose Dolphin Tales exhibit received CDE funding after Wells Fargo and SunTrust Bank purchased tax credits through the NMTC program. While NMTC advocates insist that the project created hundreds of new jobs, much of the money went to Hollywood producers and show directors. In fact, Coburn's report notes that project supporters have admitted that the aquarium could have funded the expansion without CDE financing. Moreover, Coburn sees little benefit to low-income Americans, as admission to the exhibit costs $64.95 per ticket.
The Washington Examiner reported on Coburn's study of the tax credit program, noting that a Government Accountability Office report came to similar conclusions about its effectiveness. According to the GAO, the majority (two-thirds) of the NMTC projects actually received public funding, despite the program's intent to promote private funding.
According to the Washington Examiner, the program has provided 836 investors with $40 billion in tax credits since its creation in 2000. Coburn adds that 4,000 projects have received loans and investments via the program.
Source: Susan Ferrechio, "Why a program for the poor may be helping big banks instead," Washington Examiner, August 11, 2014; Tom Coburn, "Banking on the Poor: How Corporate America Exploits Struggling Communities to Collect New Markets Tax Credits," Office of Senator Tom Coburn, August 2014.
Browse more articles on Tax and Spending Issues