Elon Musk and your tax dollars

From The Wall Street Journal:

Allysia Finley: How Government Is Making Solar Billionaires
SolarCity has never recorded a profit, but powered by subsidies, its stock price is $57 a share.
By Allysia Finley | Opinion | Oct. 21, 2013 7:09 p.m. ET

Welcome to SolarCity, the latest booming green company that has never recorded a profit. The startup’s stock price has soared by 600% since its IPO last December—it closed on Monday at $57 a share—and spiked after the company announced a couple of weeks ago that it expects business to grow by 70% to 90% next year. Yet the company, based in San Mateo, Calif., and specializing in deploying rooftop panels, ended the first six months this year $61 million in the red.

Ordinarily, that sort of number might disconcert investors. But SolarCity’s business model is powered by government subsidies, which also fueled the 500% stock run-up and turn to profit this year of the electric-car maker Tesla. Steering both companies is Elon Musk.

In addition to being the chairman of SolarCity and CEO of Tesla, Mr. Musk is the largest shareholder in both companies. The increase in their stock prices has raised his net worth by more than $5 billion over the past year.

SolarCity’s second-quarter filing with the Securities and Exchange Commission notes that the company’s “ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits” (emphasis added).

The company’s base is a 30% federal tax credit that accrues to investors who provide upfront financing for the rooftop panels that SolarCity installs for customers at no charge. Customers “lease” the panels from SolarCity by paying for the solar power they generate, which is priced below their utility’s retail rate.

Much more at the link, which I encourage you to read, because it details the various financial twists and turns Solar City takes to seem profitable, twists and turns which exist only due to a variety of government subsidies and tax breaks. Unstated, but implied, is the clear and obvious fact: Solar City, like the other so-called green energy companies, would be a complete financial failure were it not being propped up by he government.

The JOURNAL article doesn’t really elaborate on Elon Musk or Tesla, the assumption being that JOURNAL readers are already well informed on them. But Mr Musk has made his fortune riding on the back of government subsidies. Bloomberg BusinessWeek published an almost fawning article about Tesla last June, but recent stories have the stock falling. Tesla produces a well-received electric car, but it requires substantial government incentives to get people to buy the things. Given the prices of the Tesla models,1 they are available only to very well-to-do buyers. The federal government is, in effect, taking the tax dollars of low-and-middle-income taxpayers to subsidize luxury automobiles for wealthier people. How is that right?

Of course, Mr Musk knew that all along: his business model has been to make his profits on the margins provided by government subsidies, and has a net worth of between $6.7 billion and $7.7 billion, probably what you’d expect from a large Obama donor, though it appears that being an Obama donor hasn’t kept the Infernal Revenue Service from having a few questions.

The Internal Revenue Service is auditing SolarCity, the SEC filings reveal, and at the same time the Treasury Department’s inspector general is investigating the company. The question at hand: Did President Obama’s Treasury Department inappropriately give stimulus money to Musk’s company.

Obama’s stimulus transformed a long-standing tax credit for renewable energy investment into a direct grant from Treasury, worth 30 percent of a company’s investment in a renewable project. Musk’s company has applied for approximately $325 million in these stimulus grants, according to the SEC filing.

Treasury found that SolarCity repeatedly overstated the value of its investments, the SEC filings indicate. In those cases, Treasury awarded smaller grants than SolarCity had tried to claim. Now the department’s IG and the IRS are doing a broader audit of the projects for which SolarCity and other large solar companies got stimulus cash. Investigators want to know if the companies regularly overstated the value of their investments and thus got overly generous taxpayer grants.

While no government body has accused SolarCity of wrongdoing, the company disclosed: “[I]f at the conclusion of the investigation the Inspector General concludes that misrepresentations were made, the Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to us.”

The Obama administration’s possible mismanagement of the grant program is one issue here. Musk’s intimate ties to politics are another.

Musk is the paradigmatic political entrepreneur, launching businesses that seek to capitalize on government favors and lobbying clout rather than provide goods or services that consumers demand.

Musk is CEO of and the biggest investor in Tesla Motors, an electric car company that depends on stimulus money and other subsidies. He also founded Space Exploration Technologies, or SpaceX, whose primary customer is the federal government.

Musk has personally given more than $100,000 to Obama’s re-election campaign, including two gifts of more than $30,000 each to the Obama Victory Fund, which divides the money between the maximum allowable donations to the Democratic National Committee and the maximum to the Obama campaign. (Musk has also given generously to Republicans.)

Well, of course he has! When your business model is to profit from government subsidies, the only sensible thing to do is to give handsomely to government officials. Mr Musk knows how the game is played.

It is perfectly legal to give money to political candidates — campaign contributions, not bribes, you understand — but the real problem is that people like Mr Tesla do so because of government policies which make their companies and investments profitable. If the government were not giving tax incentives to Mr Musk’s customers and direct subsidies to his companies, if his companies were forced to compete in the marketplace on the same basis as other automobile and energy companies, Mr Musk would (probably) not be giving such large sums — and “bundling” more donors — to candidates, and his companies would (probably) have failed.

Somehow, your Editor, a working-class taxpayer, isn’t particularly thrilled with the idea than my tax dollars are being taken to make someone like Mr Musk a billionaire.
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23 Comments

  1. It is perfectly legal to give money to political candidates — campaign contributions, not bribes, you understand — but the real problem is that people like Mr Tesla do so because of government policies which make their companies and investments profitable. If the government were not giving tax incentives to Mr Musk’s customers and direct subsidies to his companies, if his companies were forced to compete in the marketplace on the same basis as other automobile and energy companies, Mr Musk would (probably) not be giving such large sums — and “bundling” more donors — to candidates, and his companies would (probably) have failed.

    Somehow, your Editor, a working-class taxpayer, isn’t particularly thrilled with the idea than my tax dollars are being taken to make someone like Mr Musk a billionaire.

    Uh-huh.

    Wikipedia – “Energy subsidies”

    —–
    Allocation of subsidies in the United States

    A 2011 study by the consulting firm Management Information Services, Inc. (MISI)[7] estimated the total historical federal subsidies for various energy sources over the years 1950-2010. The study found that oil, natural gas, and coal received $369 billion, $121 billion, and $104 billion (2010 dollars), respectively, or 70% of total energy subsidies over that period. Oil, natural gas, and coal benefitted most from percentage depletion allowances and other tax-based subsidies, but oil also benefitted heavily from regulatory subsidies such as exemptions from price controls and higher-than-average rates of return allowed on oil pipelines. The MISI report found that non-hydro renewable energy (primarily wind and solar) benefitted from $74 billion in federal subsidies, or 9% of the total, largely in the form of tax policy and direct federal expenditures on research and development (R&D). Nuclear power benefitted from $73 billion in federal subsidies, 9% of the total, largely in the form of R&D, while hydro power received $90 billion in federal subsidies, 12% of the total.

    A 2009 study by the Environmental Law Institute[8] assessed the size and structure of U.S. energy subsidies over the 2002–2008 period. The study estimated that subsidies to fossil-fuel based sources amounted to approximately $72 billion over this period and subsidies to renewable fuel sources totaled $29 billion. The study did not assess subsidies supporting nuclear energy.

    The three largest fossil fuel subsidies were:

    Foreign tax credit ($15.3 billion)
    Credit for production of non-conventional fuels ($14.1 billion)
    Oil and Gas exploration and development expensing ($7.1 billion)

    The three largest renewable fuel subsidies were:

    Alcohol Credit for Fuel Excise Tax ($11.6 billion)
    Renewable Electricity Production Credit ($5.2 billion)
    Corn-Based Ethanol ($5.0 billion)

    In the United States, the federal government has paid US$74billion for energy subsidies to support R&D for nuclear power ($50 billion) and fossil fuels ($24 billion) from 1973 to 2003. During this same timeframe, renewable energy technologies and energy efficiency received a total of US$26billion. It has been suggested that a subsidy shift would help to level the playing field and support growing energy sectors, namely solar power, wind power, and biofuels.[9] However, many of the “subsidies” available to the oil and gas industries are general business opportunity credits, available to all US businesses (particularly, the foreign tax credit mentioned above). The value of industry-specific subsidies in 2006 was estimated by the Texas State Comptroller to be just $3.06 billion a fraction of the amount claimed by the Environmental Law Institute.[10] The balance of federal subsides, which the comptroller valued at $7.4 billion, came from shared credits and deductions, and oil defense (spending on the Strategic Petroleum Reserve, energy infrastructure security, etc.).

    The most important subsidies to the nuclear industry have not involved cash payments. Rather, they have shifted construction costs and operating risks from investors to taxpayers and ratepayers, burdening them with an array of risks including cost overruns, defaults to accidents, and nuclear waste management. This approach has remained remarkably consistent throughout the nuclear industry’s history, and distorts market choices that would otherwise favor less risky energy investments.[11]

    Many energy analysts, such as Clint Wilder, Ron Pernick and Lester Brown, have suggested that energy subsidies need to be shifted away from mature and established industries and towards high growth clean energy. They also suggest that such subsidies need to be reliable, long-term and consistent, to avoid the periodic difficulties that the wind industry has had in the United States.[9][12]

    A 2012 study authored by researchers at the Breakthrough Institute, Brookings Institution, and World Resources Institute[13] estimated that between 2009 and 2014 the federal government will spend $150 billion on clean energy through a combination of direct spending and tax expenditures. Renewable electricity (mainly wind, solar, geothermal, hydro, and tidal energy) will account for the largest share of this expenditure, 32.1%, while spending on liquid biofuels will account for the next largest share, 16.1%. Spending on multiple and other forms of clean energy, including energy efficiency, electric vehicles and advanced batteries, high-speed rail, grid and transportation electrification, nuclear, and advanced fossil fuel technologies, will account for the remaining share, 51.8%. Moreover, the report finds that absent federal action, spending on clean energy will decline by 75%, from $44.3 billion in 2009 to $11.0 billion in 2014.

    According to the OECD, subsidies supporting fossil fuels, particularly coal and oil, represent greater threats to the environment than subsidies to renewable energy. Subsidies to nuclear power contribute to unique environmental and safety issues, related mostly to the risk of high-level environmental damage, although nuclear power contributes positively to the environment in the areas of air pollution and climate change. Subsidies to renewable energy are generally considered more environmentally beneficial, although the full range of environmental effects should to be taken into account.[14]

    A 2010 study by Global Subsidies Initiative compared global relative subsidies of different energy sources. Results show that fossil fuels receive 0.8 US cents per kWh of energy they produce (although it should be noted that the estimate of fossil fuel subsidies applies only to consumer subsidies and only within non-OECD countries), nuclear energy receives 1.7 cents / kWh, renewable energy (excluding hydroelectricity) receives 5.0 cents / kWh and biofuels receive 5.1 cents / kWh in subsidies.[15]

    In 2011, IEA chief economist Faith Birol said the current $409 billion equivalent of fossil fuel subsidies are encouraging a wasteful use of energy, and that the cuts in subsidies is the biggest policy item that would help renewable energies get more market share and reduce CO2 emissions.[16]

    In February 2011 and January 2012 the UK Energy Fair group, supported by other organisations and environmentalists, lodged formal complaints with the European Union’s Directorate General for Competition, alleging that the Government was providing unlawful State aid in the form of subsidies for nuclear power industry, in breach of European Union competition law.[17][18]

    One of the largest subsidies is the cap on liabilities for nuclear accidents which the nuclear power industry has negotiated with governments. “Like car drivers, the operators of nuclear plants should be properly insured,” said Gerry Wolff, coordinator of the Energy Fair group. The group calculates that, “if nuclear operators were fully insured against the cost of nuclear disasters like those at Chernobyl and Fukushima, the price of nuclear electricity would rise by at least €0.14 per kWh and perhaps as much as €2.36, depending on assumptions made”.[19]

  2. Wiki as a source is specious at best, since it’s basically left leaning. However, in this case the Dumbass is correct. With all the subsidies being spread around the energy sector we can ill afford more on a strictly unproven and speculative area as solar or wind. In fact we should begin immediately to roll back existing subsidies starting with ethanol and moving on from there. As a person for a free and open market it is not my job to subsidize oil, gas, solar or any other private corporation’s investments.

    As the Dumbass pointed out-we subsidize too much and we have no need to or obligation to subsidize any more especially solar or wind. Roll back existing subsidies and forbid by law future subsidies on wind and solar! Encourage drilling and fracking in the US and refuse to support any UN initiative on solar or wind.

    A real energy initiative would be to set a goal of fifty new nuclear facilities and fifty new refineries in the US in ten years…one each per state. Jobs, energy and the complete undoing of the radical anti-energy lobby all in one swoop.

  3. Wiki as a source is specious at best,

    It’s more reliable than a proven liar.

    “[Obama] is the largest spender in history whether the history books like it or not. Plus, he already managed to get us downgraded and we’re headed that way again.” – Hoagie, Thursday, 10 October 2013 at 16:21

    “Dumbass, you’re a liar. I never stated Obama got the US downgraded. I stated it occurred on his watch. Don’t they teach librarians reading comprehension down there? Dumbass.” – Hoagie, Thursday, 10 October 2013 at 22:53

  4. Wasn’t a lie Dumbass, it was an error. Like when you stated Jefferson wrote the Constitution. Any brilliant, hansom and wealthy fellow can misspeak, but only a Dumbass doesn’t know Jefferson didn’t write the Constitution. But thanks for constantly quoting me, means you can’t get me out of your tiny mind. Every time you do that I feel myself poking you with a very, very sharp stick.

    What a Dumbass!

  5. Pingback: Nice Work If You Can Get It | The Lonely Conservative

  6. By the way, the Obama administration just cost me 1,000 dollars in revenue this week alone. Due to his maladministration’s DOT rules changes, I lost 1,000 dollars in revenue in one week.

  7. BTW Dumbass, why are you attacking me? I agreed with both you and your amateur web site. There is entirely too many subsidies going all over the place just to buy votes and influence.

    I don’t want to sub Solyndra any more than ACORN any more than NPR or EXXON or Planned Parenthood, GM, Obamacare…..should I go on? Geez, even when someone agrees with you, you act like a dumbass. Must be in you genes or something. But again, thanks for thinking about me.

  8. You lost $1,000 in one week? What’d they do change the rules in the middle of the game as leftists are apt to do? Or are they just screwin’ with you because you’re gaining ground?

  9. The regulations for truckers were changed in such a way that it will take at least 10 percent more truckers and trucks to deliver the same tonnage that was delivered last year. And take more diesel fuel. And those rules changes cost me 1,000 dollars in revenue this week alone.

  10. Well, it’s just about time to pick up this load in Auburndale, FL and take it to the Sparks, NV Wallyworld distribution center.

  11. Musk is CEO of and the biggest investor in Tesla Motors, an electric car company that depends on stimulus money and other subsidies.

    I’ve said before – electric vehicles have their place, and that place is on a golf course.

  12. Tesla produces a well-received electric car, but it requires substantial government incentives to get people to buy the things. Given the prices of the Tesla models,1 they are available only to very well-to-do buyers. The federal government is, in effect, taking the tax dollars of low-and-middle-income taxpayers to subsidize luxury automobiles for wealthier people. How is that right?

    It should be noted that the British and French governments did basically the same thing when they developed the Concorde, largely at taxpayers’ expense, a product paid for by the masses but which could be enjoyed only by the rich.

    Of course, I guess rich people need socialism, too.

  13. Well, we moved about 35 miles down the road and stopped. We cannot arrive at our 2345 appointment more than 30 minutes early so we wait. Truckers call Wal-Mart Wallyworld. We delivered our load this morning in Lakeland at 0600 and have been sitting still since then. And we get a slow load to NV. As a result of certain DOT regulations that caused me to lose an entire extra day I didn’t need to lose. Regulations that weren’t there last year and are now.

  14. Truckers call Wal-Mart Wallyworld.

    I’ve called Wal-Mart, WallyWorld for years. I think that got started because of Vacation They have been in our town for over 15 years and we knew them as WallyWorld before that.

  15. Wasn’t a lie Dumbass, it was an error.

    Uh-huh.

    “[Obama] is the largest spender in history whether the history books like it or not. Plus, he already managed to get us downgraded and we’re headed that way again.” – Hoagie, Thursday, 10 October 2013 at 16:21

    “Dumbass, you’re a liar. I never stated Obama got the US downgraded. I stated it occurred on his watch. Don’t they teach librarians reading comprehension down there? Dumbass.” – Hoagie, Thursday, 10 October 2013 at 22:53

  16. Your obsession with me is getting creepy. Are you gay or something? I mean, you can keep quoting me and quoting me but unless you’re the stupidest person alive an error is just an error. Like Jefferson. I made a fucking mistake and you are creeping me out by repeating it over and over like you’re insane about it. Is there something wrong with your fucking brain Dumbass? You do the same thing with Eric. Are you a gay stalker or just an obsessed fan of ours. I guess it’s a compliment that you hang on our every word but dude, repeating the same thing over and over ain’t good mental health. BTW, no matter how many times you repeat yourself, you’re still a Dumbass, but you’re morphing into an insane, creepy Dumbass. Feel my stick poking you? Feel it? Poke. Poke.

    Ha, ha, ha, ha, ha. You crack me up.

  17. Once again Dumbass, I agree with you. Your argument and citation to Wiki are correct: we should not subsidize wind or solar power. Furthermore we should not subsidize the other things mentioned and I’ll bet we could come up with a thousand other areas that subsidies need to be stopped. You win. No subsidies for leftist billionaires. There, I said it, I agree. So what’s your beef? ( Poke, Poke, Prod, Prod.)

  18. And I agree with both the Phoenician [shudder!] and Hoagie: we do have too many government subsidies, on too many things. We have lobbyists urging the Congress to create special tax breaks and incentives and outright subsidies, and then we have more lobbyists to urge Congress to keep those subsidies and tax breaks and incentives going, and every last one of them can be argued to be a reasonable thing to do to lead to some benefit.

    Trouble is, when you subsidize almost everything, you wash out any perceived benefits. Except for the accountants and lawyers, that is; they love that [insert slang term for feces here].

  19. Of course, the subsidies that Mr Musk is getting are hardly the only ones. Remember “cash for clunkers?” The idea was to get older, less efficient cars off the road, but the only people who could benefit from the program already had money!

  20. We have lobbyists urging the Congress to create special tax breaks and incentives and outright subsidies, and then we have more lobbyists to urge Congress to keep those subsidies and tax breaks and incentives going, and every last one of them can be argued to be a reasonable thing to do to lead to some benefit.

    PJ O’Rourke said it best:

    When buying and selling are controlled by legislation,
    The first thing to be bought and sold are legislators.

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