Uncle Sam’s Favorite Billionaires

April 2nd, 2015 by Phil Mattera

william-erbey_416x416Inequality is becoming so pronounced that presidential hopefuls of all ideological persuasions are acknowledging that something needs to be done. One issue they should consider is the extent to which the federal government itself contributes to the problem.

It’s clear that the federal tax code is structured in a way that favors wealthy individuals and corporations. But it turns out that Uncle Sam is also providing direct financial assistance to the billionaire class. The extent of that assistance can be estimated from the data my colleagues and I at Good Jobs First assembled for Subsidy Tracker 3.0, which we released recently.

We compiled 164,000 company-specific entries for federal grants, allocated tax credits, loans, loan guarantees and bailout assistance provided through 137 programs overseen by 11 cabinet departments and six independent agencies. These were added to 277,00 state and local awards in the database. Since 2000 the grants and allocated tax credits have amounted to $68 billion; the face value of the loans and bailouts, which we tally separately, have run into the trillions.

Along with the release of Tracker 3.0, we published a report called Uncle Sam’s Favorite Corporations that described the extent to which large corporations dominate federal subsidies. Some of those companies are owned in whole or in part by the country’s wealthiest individuals and families.

I subsequently matched the big federal subsidy recipients to the companies linked to members of the Forbes 400 list of the richest Americans. This exercise was an extension of an analysis my colleagues and I performed on state and local data for our December 2014 report Tax Breaks and Inequality.

Of the 258 companies controlled by a member of the Forbes 400, 39 have received federal grants and allocated tax credits. Their awards total $1.3 billion. The richest of the billionaires linked to these firms is Warren Buffett, whose Berkshire Hathaway conglomerate accounts for $178 million of the subsidies.

Two of the other companies are worth examining more closely, because they have also been embroiled in controversies over their business practices.

At the top of the list is Ocwen Financial, which received $434 million in subsidies through a provision of the Home Affordable Modification Program (a part of the TARP bailout) that provided incentives to mortgage servicers to revamp loans to homeowners whose properties were underwater or otherwise unsustainable.

Ocwen, which made extensive use of that program, was founded by William Erbey (photo), whose net worth was estimated at $1.8 billion in the most recent Forbes list, published when he was still chairman of the company. Subsequently, Erbey had to step down as part of a settlement the company reached with New York State financial regulators to resolve allegations of improper foreclosures and other abusive practices. Ocwen also had to provide $150 million in assistance to those whose homes had been foreclosed. It is also paying a smaller amount under a settlement with California regulators.

While Erbey is no longer running Ocwen, he may still be a major shareholder. As of last year’s proxy statement, he held the largest stake in the company (15 percent); this year’s proxy is not out yet.

The second largest subsidy recipient linked to a member of the Forbes 400 is SolarCity, which has received $326 million in grants and allocated tax credits, mostly through Section 1603 of the Recovery Act, which provides cash payments to companies installing renewable energy equipment. The chairman of SolarCity is Elon Musk, better known for his role in the electric car company Tesla Motors (which, by the way, got a $465 million federal loan and later repaid it). Musk, whose cousins Lyndon and Peter Rive are the top executives at SolarCity, has a net worth estimated by Forbes at $11.6 billion. Tesla Motors has business dealings with SolarCity.

It was recently reported that SolarCity is being investigated by Oregon prosecutors in connection with allegations that it used solar panels made by federal prisoners in renewable energy projects at two state university campuses for which it received $11.8 million in state tax credits designed to promote local employment.

Assuming the allegations turn out to be accurate, it is difficult to know where to begin in stating all that is wrong with this situation. A company chaired by the 44th richest person in the country that has received hundreds of millions of dollars in federal subsidies used prisoners paid less than a dollar an hour to install solar panels so that it can collect millions more in state subsidies.

Subsidies, whether federal or state, are by no means the largest contributor to inequality, but policymakers should try to find some way to limit their use by billionaires, especially those linked to shady business practices.

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