Coyote Blog

This New York Times article here could have been a perfectly reasonable thought piece on the (perhaps unintended) effects of several provisions in the tax code.  But in an institutional desire to land a few more blows on Trump, they tried to morph it into a hit piece on Jared Kushner --"Jared Kushner Paid No Federal Income Tax for Years" screams the headline.

Look NYT:  I find Trump distasteful as well.  But you only embarrass yourself presenting as some kind of investigative bombshell that Jared Kushner used perfectly legal deductions to minimize his tax bill.

I recommend this ZeroHedge summary to you as a quick way to get to the meat of the Times article.  As they summarize it, the Kushner tax "maneuver" consists of:

tep 1: The Purchase

Kushner Companies buys a property. The majority of the money for the purchase comes in the form of mortgages and personal loans from banks.

Step 2: The Write-Off

Under the federal tax code, real estate investors can write off the purchase price of the building — excluding the cost of the land — over a period of decades. Although Kushner Companies has spent little or no cash of its own, the firm takes large annual deductions based on the theoretical depreciation of the building.

Step 3: The Loss

The property generates cash for the Kushners. But any earnings, which would be subject to the federal income tax, are swamped by the amount that the company is taking in write-offs for depreciation. The result is that Kushner Companies records a net loss for tax purposes.

Step 4: The Investors

The company passes on that loss to its owners, including Mr. Kushner and his father, Charles.

Step 5: The Offset

The loss can be used to offset the Kushners’ income in the year it is recorded, and it can be carried forward to cancel out future income or to get refunds for taxes they paid in previous years.

Step 6: The Deferral

When Kushner Companies sells a property, it can use the proceeds to finance a new acquisition. If done within the right time frame, the company can indefinitely defer any capital-gains taxes it might owe on the sale of the original property.

So here is my confession.  I did the exact same thing just last year on my taxes.  Take one example:  One of my businesses bought and installed $350,000 of equipment.  I financed 100% of this purchase.  The article says that Kushner depreciated his real estate purchases over decades but the tax code's accelerated depreciation provisions allowed me to depreciate this purchase 100% in the first year.  So I had an immediately $350,000 loss that I netted against other income, grealy reducing my taxes on that income.  In fact, I don't think I was able to use it all due to various tax rules and I carried over a part of it to cover 2018 taxes or beyond.

One could argue about whether the accelerated depreciation provision I took advantage of is too generous, but the tax code is always going to allow depreciation against some formula (or else every business would be substituting crazy rental schemes for capital investment).

Let's take each step from above

1. The Times wants to make a big deal that somehow the fact that he is using borrowed money to buy assets is a factor in this, but why?  They imply a couple of times that all the debt reduces his ownership, but that is not true.  He still owns 100% of the asset (with the proviso the bank has a lien that is only meaningful in case of default.  His equity is only a fraction of the purchase price, but that is a different thing and says nothing about his ownership
2. The depreciation provisions are pretty standards as described across all businesses, except to say that they are less generous than the ones I get buying equipment.  Again they seem to think that somehow the fact that he borrowed most of the money is relevant to this -"Mr. Kushner is getting tax-reducing losses for spending someone else’s money" -- but his financing strategy is not the least relevant.  He took on a costly and risky long-term obligation when he borrowed the money.  Is the NYT arguing for requiring cash accounting for taxes??  This is just embarrassingly ignorant.
3. This is entirely normal
4. This is entirely normal for s-corporations and LLC's.  These were promoted for small business, and they are fabulous tools for entrepreneurs, but you have to provide these legal tools to all people, even to rich people in families you don't like.
5. This is entirely normal.  Any other rule would be grossly unfair and a kick in the nuts for entrepreneurs.  I often spend money this year that generates revenues next year.  The tax code recognizes this and agrees that the losses I took this year can be netted against the revenues next year that they helped to facilitate.
6. This is the only thing that is mildly unique to real estate and his business.  I don't really get the same rights with any of my assets, though my assets mostly depreciate rather than increase in value.  I won't pass judgement on this one, but I suspect that it has a lot of support (homeowners get it, for example, as do owners of second homes).

Nowhere is there even a suggestion of how the tax code might be altered to fix those things the NYT does not like about it.  I would suggest that any step that would alter any of the 6 steps above would be opposed even in a Democratic Congress.  This all reminds me of a piece a few years ago arguing that oil companies got a lot more subsidies than renewables like wind and solar.  Checking it out, the vast, vast majority of the subsidies were ... LIFO inventory accounting and depreciation, both tax rules that are 1) merely about timing of taxes and not total paid and 2) apply to all manufacturing businesses in all industries.

In the most recent version of a tax "reform" proposal in Congress, there was a provision for a reduced personal income tax rate on income from pass-through entities.  A pass-through entity is usually an S-corporation or an LLC, where the entity fills out a corporate tax form but pays no income taxes -- instead the income passes through to the individuals who own the entity, and taxes are paid on the individual return.  This was a great innovation because it provides an alternative to the double taxation of income that still exists with traditional C-corporations  (ie tax is paid by the corporation on income and again on the same income when it is passed through as capital gains or dividends to the owners).

I own an S-corp and would benefit greatly from a reduced tax rate on S-corp pass through income.  But I oppose it.  The basis of this tax proposal is a familiar one -- there is some type of economic behavior that Congress thinks is either meritorious or counter-productive, and there is a great urge to tweak the tax code to promote or hinder these behaviors.  We get sold on the idea that owning a home is better than renting and thus we have the mortgage interest deduction.  There are thousands of such tweaks in the tax code, and most have little to do with economic reality and more to do with some special interest rent-seeking with Congress.

Someone in Congress thinks it's good that business people own small businesses and they should get a lower tax rate.  That's me, so thanks. But we end up with craziness, exactly as we do every time Congress tries to pick winners and losers.  Here would be effective tax rates (corporate + individual) for income earned in different ways under the new plan:

• The lowest rate would be for income to a passive investor in a pass-through
• The next lowest rate would be for income to an active investor in a pass-through -- yes, from a tax point of view it is less meritorious to actually work at the pass-through entity than just collect checks.  The logic is that part of one's pass-through income is for "labor" and thus needs to be taxed at the higher regular income tax rate.  How anyone can separate how much of my profits are from my labor and how much is from -- what?  unicorns? -- I have no idea
• The next higher rate would be paid on passive income from a C-corporation like ExxonMobil, which would be taxed at the corporate rate and then taxed at the dividend rate (currently 15%) on the individual return but the combination would likely be less than the maximum personal rate.  For people without a lot of other income, this might be the highest taxed activity.
• The highest rate would be for people simply working and earning income, assuming they are in the upper tax brackets.

All of this makes zero sense, or to the extent it makes sense to anyone is based on economic theories that likely don't hold a lot of water.  It reminds me of the old efforts to distinguish between the deserving and undeserving poor when giving out relief.  Every person in Congress seems to have a personal vision of deserved and undeserved income.  Just because the current folks have me in the deserving category doesn't mean that the next batch won't put me in the opposite category.

I think the entire corporate tax system needs to be junked.  The amount of effort that goes into compliance, and perhaps more importantly, the number of distortions is creates, make finding an alternative well worth the effort.  My tax plan has always been:

1. Eliminate all deductions in the individual income tax code except for a single personal deduction
2. Eliminate the corporate income tax.
3. Tax capital gains and dividends as regular income.
4. Eliminate the death tax as well as the write-up of asset values at death

Corporate income all eventually passes through to individuals as capital gains or dividends, so eventually they do get taxed.  The same is true of inherited assets -- because they would not get written up in value at death, they would still trigger large capital gains once tapped by those who inherit the assets.  As far as rates are concerned, I actually don't see a strong need for a flat tax -- I can live with the progressive rates we have now.

I have heard people of late saying that we can't eliminate the corporate income tax because foreign investors would never get taxed.  First, they would get taxed, just in their home country.  And second, who cares?  There have got to be a lot of things worse than a rush of foreign capital into the US.

The government claims to be making huge profits on its greentech loan program, despite losses at companies like Solyndra.

The U.S. government expects to earn $5 billion to $6 billion from the renewable-energy loan program that funded flops including Solyndra LLC, supporting President Barack Obama’s decision to back low-carbon technologies.

The Department of Energy has disbursed about half of $32.4 billion allocated to spur innovation, and the expected return will be detailed in a report due to be released as soon as tomorrow, according to an official who helped put together the data.

The results contradict the widely held view that the U.S. has wasted taxpayer money funding failures including Solyndra, which closed its doors in 2011 after receiving $528 million in government backing. That adds to Obama’s credibility as he seeks to make climate change a bigger priority after announcing a historic emissions deal with China.

Even Kevin Drum calls partial BS on this:

And yet....I'd still remain a bit cautious about the overall success of the program. Out of its $32 billion in approved loans, half represent loan guarantees to nuclear power plant developers and Ford Motor. These are not exactly risky, innovative startups. They're huge companies that could very easily have raised money without government help, and which represented virtually zero danger of default. If DOE is including returns from those loans in its forecast, color me unimpressed.

The genuinely risky half of the loan program is called Section 1705, and it includes everything that most of us think of as real renewable energy projects (wind, solar, biofuel, etc.). DOE hasn't broken that out separately.

I call further BS.  It turns out this program is actually losing money, not making money.

1. This "study" is a classic case of assuming your conclusion. The reason the risky parts of the portfolio would lose money is if they don't pay off over the next 20 years or so they have to run. But all the study says is "The $5 billion to $6 billion figure was calculated based on the average rates and expected returns of funds dispersed so far, paid back over 20 to 25 years." In other words, if the loans turn out not to be risky, they won't be risky. LOL.
2. I bet they are not accounting for things like Ivanpah, there the holders of the government loan are looking to pay off the government loan with .. a government subsidy. So if you squint, the loan to Ivanpah looks profitable, but no rational person would come to that conclusion about the program as a whole.
3. Ivanpah is just a subset of a larger problem. Companies like Tesla get government subsidies (and their customers get subsidies as well) from dozens of sources. Is it really a win for taxpayers if they pay back their government loan with government money?
4. They count the 37 basis points above treasury rates that they charge as "profit". This is crazy. I run a fairly large business. No business is getting Tbills +37 BP loans. Heck, since Tbills are at about 0%, this means they are loaning money to private concerns at less than 1%. This is a crazy large subsidy.  I could make money in over a 2-5 year period in just about anything if I could borrow at effectively 0%.
5. Worst of all, they are not using present value.  Let's say their average spread from the Bloomberg article is 100 BP over treasuries.  That means that ignoring loan losses on a $32 billion portfolio they are making a spread of $320 million a year.  Over 20-25 years that is $6-7 billion.  Less some large loan losses that is $5-6 billion.  But notice I never discounted.  This is just adding up nominal interest spreads over 25 years.  This is insane.  Absolutely no private investor on the planet would think like this.  If you discounted the interest spread payments at any reasonable risk-adjusted rate**, then the net present value may already be less than losses in Solyndra and others and thus already in the hole, even without considering future losses.  This report is an embarrassing political exercise, not a serious economic analysis.

All of this leaves out the inherent cronyism of the whole exercise.

** I would argue that in many of these loans, and despite interest rates charged in the 0-2% range, the government was taking an equity risk.  Worse than equity risks -- these are essentially venture capital investments risks with T-bill returns (note the one private comment on the returns in the Bloomberg article is from a venture capital investor in greentech).   The taxpayers are bearing all the risk but getting none of the returns.  Any discount rate for these risks under 15-20% is far too low.

Greg Mankiw wonders how much the growth of pass-through corporations like sub-chapter S corps are skewing income trends, particularly for the highest earners.   With a C-corp, an owner only recognizes corporate income when it is passed through as dividends or when they sell the company.  With an S-Corp or LLC, there are no corporate taxes and corporate income is declared in that year, in full, on one's individual 1040.  I asked about this as far back as 2006 and 2007.

Business gets held liable for the unpaid wages of the previous tenant of the building they are using.

An employer that acquired the assets of a defunct bar and restaurant and continued to operate a restaurant on the same premises was liable for unpaid wages owed to the defunct restaurant’s former employees, the Oregon Supreme Court has ruled. Blachana LLC v. Bureau of Labor and Industries, No. S060789 (Ore. Jan. 16, 2014).

Reversing the Oregon Court of Appeals, the Court found that the Bureau of Labor and Industries (BOLI) did not err in deciding the employer was a successor for state wage liability purposes because it conducted “essentially the same business as conducted by the predecessor,” even though it did not employ any of the predecessor’s employees.

Walter Olson writes (emphasis added)

Elane Photography LLC v. Vanessa Willock is the case in which an Albuquerque, NM woman has (thus farsuccessfully) sued husband-and-wife photographers under New Mexico’s “public accommodations” discrimination law for their reluctance to shoot photos of her commitment ceremony to a female partner. One of the most dismaying elements of the case is that the American Civil Liberties Union has taken the anti-liberty side. Adam Liptak in the NYT:

I asked Louise Melling, a lawyer at the American Civil Liberties Union, which has a distinguished history of championing free speech, how the group had evaluated the case.

Ms. Melling said the evaluation had required difficult choices. Photography is expression protected by the Constitution, she said, and Ms. [Elane] Huguenin acted from “heartfelt convictions.”

But the equal treatment of gay couples is more important than the free speech rights of commercial photographers, she said, explaining why the A.C.L.U. filed a brief in the New Mexico Supreme Court supporting the couple.

Earlier, Olson made the useful point that large organizations like the ACLU are not monolithic -- they have internal conflicts on issues like this.  But based on my interactions with the ACLU, I believe the key word is in bold:  "commercial".   For many at the ACLU, the fact that an activity is commercial or for money voids or cancels out any rights one has.  Property rights or rights exercised in the conduct of commerce tend to always come last (if at all) at the ACLU.  Which is why I donate every year to the IJ, the organization the ACLU should have been if they had not been founded by Stalinists.  Update:  That is unfair.  It's like criticizing someone because of what his father did or believed.  Many organizations move beyond their original founder's legacy.  But it is never-the-less undeniable that -- at best -- the ACLU has no interest in property rights or commercial freedoms.

Via the WSJ, the Solyndra scam continues

Having sold off its manufacturing plant, fired nearly 1,000 workers and proven the non-viability of its business model, Solyndra's only real assets are what the IRS calls "tax attributes." These are between $875 million and $975 million in net operating losses that can reduce future taxable income, which the IRS values as high as $350 million. Before it went toes up, Solyndra also accumulated $12 million in solar tax credits that can reduce tax liabilities dollar for dollar.

Tax-loss carry-forwards are routine but worthless if a company can't turn profits to pay taxes on. So Solyndra's owners are asking the court to liquidate the rest of the business and contribute a net $6.7 million to pay off creditors for pennies on the dollar. A holding corporation will then emerge from Chapter 11 that won't make products or employ workers, but it will get the Solyndra tax offsets.

The dummy company is owned by Argonaut Ventures I LLC, Solyndra's largest shareholder and the primary investment arm of the George Kaiser Family Foundation. Mr. Kaiser is a Tulsa oil billionaire who bundled campaign checks for Mr. Obama in 2008.

Wow, who could have predicted this?   Well, lots of folks, including me just over a year ago.   I actually underestimated the value, assuming the losses would be worth about $150 million in avoided taxes, not the $350 million the IRS now pegs them at.  If I can figure out this game, the Obama Administration had to know what was going on.

If the Administration allows this to happen (and remember that in the GM boondoggle,  Obama waived the traditional rules that have bankrupt companies losing their tax loss carryforwards, giving GM a multi-billion dollar tax subsidy almost no one counts in the bailout costs), this will make Kaiser's last cash investment in Solyndra one of the great crony deals of all time.

If you remember, Kaiser (via Argonaut) invested $75 million as Solyndra was going down the tubes.  No rational person could have thought that amount would have saved the company, and it didn't.  What it bought, we now know, is three things:

• Kaiser got the US Government to give up their lead creditor position to Kaiser, basically putting the US Government behind the Obama donor to get repaid and reducing the taxpayers' influence in the bankruptcy
• It gave Kaiser a few precious months to loot the company.  Between that $75 million investment and the bankruptcy, Solyndra sold off most of its liquid assets at a discount to .... Argonaut, the group controlled by Kaiser
• It looks like Kaiser will get nearly a billion dollars in tax losses that can be used to reduce its future taxes by $350 million.

Via Business Week

 Beacon Power Corp., an energy- storage company that received $43 million in backing from the U.S. program that supported failed solar-panel maker Solyndra LLC, filed for bankruptcy after struggling to raise private financing.

The money-losing company, which makes flywheels that manage energy moving through a power grid, had sought to avoid the fate of Solyndra, which entered bankruptcy last month after receiving a $535 million loan guarantee from a U.S. Energy Department program designed to spur alternative energy development. Beacon faced delisting of its shares by the Nasdaq Stock Market and warned in an Aug. 9 regulatory filing that it might not remain a “going concern.”...

In addition, Beacon received $29 million in grants from the U.S. and Pennsylvania for a 20-megawatt plant in that state and hired Group Robinson LLC to help raise more funds for the $53 million project. Group Robinson, a Menlo Park, California- based renewable-energy consulting company, also was helping Beacon find customers outside the U.S.

This is not an accident.  By definition, the government is investing in companies that every other private lender and investor turned down.

From AutoGreenBlog

Output of cellulosic ethanol will surge starting in 2013, according to the U.S.' largest corn-based biofuel production firm, Poet LLC.

Poet says 2013 marks the start of commercial-scale cellulosic ethanol production in the U.S. and predicts its lone facility will "open the floodgates" for the advanced biofuel....

As Poet exec Greg Hartgraves points out, production of cellulosic ethanol is expensive and that means those floodgates need to be helped open with federal monies. Without an energy policy mandating its production, U.S. firms are likely to shy away from the cellulosic biofuel, he said.

Duh.  It's a substitute that is both less effective (lower btu per gallon) and more expensive that what it is supposedly substituting.   I am just floored at the number of investors who are putting money up on the come with an expectation that somewhere down the road they can convince the government to subsidize them.  Poet knows this plant is uneconomic but has built it anyway, probably hoping to extract promises of support from candidates in the Iowa caucuses.  Kleiner Perkins did the same think with Fisker Automotive, making early stage investments that could only be bailed out by future political largess.  As Ayn Rand would say,the aristocrats of pull.

This story is from the WSJ, and gets extra bonus points for including the poster-boy of the corporate state, Jeffrey Immelt

Treasury and OMB singled out an 845-megawatt wind farm that the Energy Department had guaranteed in Oregon called Shepherds Flat, a $1.9 billion installation of 338 General Electric turbines. Combining the stimulus and other federal and state subsidies, the total taxpayer cost is about $1.2 billion, while sponsors GE and Caithness Energy LLC had invested equity of merely about 11%. The memo also notes the wind farm could sell power at "above-market rates" because of Oregon's renewable portfolio standard mandate, which requires utilities to buy a certain annual amount of wind, solar, etc.

But then GE said it was considering "going to the private market for financing out of frustration with the review process." Anything but that. The memo dryly observes that "the alternative of private financing would not make the project financially non-viable."

Oh, and while Shepherds Flat might result in about 18 million fewer tons of carbon through 2033, "reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules)."

So here we have the government already paying for 65% of a project that doesn't even meet its normal cost-benefit test, and then the White House has to referee when one of the largest corporations in the world (GE) importunes the Administration to move faster by threatening to find a private financial substitute like any other business. Remind us again why taxpayers should pay for this kind of corporate welfare?

First, the moment GE said that this could be financed privately, the Feds should have said "then what the f*ck are you talking to us for? Get out of here."  By the way, privately probably does not mean privately -- it probably means going to private banks or investors who in turn access many of the same taxpayer funds.

Second, its amazing that the threat to finance this privately rather than sponging off taxpayer funds is treated as a threat by the Obama Administration.  They desperately want to "take credit" for the project and can only do so by spending our money  (this is the same impulse that propels politicians who have never given a dime to charity to want to spend taxpayer money in order to be called "caring.")

Via the AZ Republic

10 of the 25 most lucrative stimulus-funded contracts for work inside the state were awarded by the U.S. Environmental Protection Agency to one Alaskan company.

Bristol Environmental Remediation Services LLC, based in Anchorage, was not required to bid for the work, which is valued at more than $140 million and involves ground-pollution monitoring and cleanup at 10 Arizona sites, including San Carlos, Parker, Tuba City and Window Rock

Who wants to bet this company has had friends named Stevens and Murkowski?  What is it about Alaska?

As an added bonus, to my frequent point that regulation in general and our new emerging corporate state in general tend to favor large companies over small:

Tom Mertz is Tempe-based Sundt Construction Inc.'s federal division vice president, a position that has few counterparts among Sundt's smaller competitors.

Contracts funded by the federal government tend to favor larger companies such as Sundt, Mertz said, because there are additional steps involved in completing such a project, many of them involving protocol and paperwork.

"Federal-government work certainly is not for everyone," he said.

Sundt has landed both state and federal economic-stimulus projects, including one of Arizona's biggest, a $24.6 million contract to build federal-courthouse facilities in Yuma....

Mark Stapp, director of ASU's Master of Real Estate Development program and a longtime developer in the Valley, said that the problems smaller contractors encounter most often on public projects have little to do with the work itself.

"It's the administration of the work that kills them," he said.

As a result, many small and midsize contractors have avoided government-sponsored work, which adds to their current disadvantage now that the public sector is hosting the only game in town.

From the WSJ:

The wide-ranging pay-to-play probe concerns whether investment firms like Mr. Rattner's former firm, Quadrangle Group LLC, were held up for fees and favors to secure access to lucrative business from New York's $125 billion public-pension fund.

So government officials, who have all the power, demand bribes from businesses in order for those businesses to participate in a certain market, and when discovered it is the private businesses that are being investigated?

This is just so typical of government, where pay-to-play rules are in fact legislated for businesses from bars to taxicabs.  I can't do anything new in Ventura County without bringing a whole series of checks to the County planning offices -- nearly every single department must be paid off before I can do something as simple as remodel a bathroom or revamp a store.  None of this is under the table, mind you, it is entirely up front and nominally legal.

... but I am increasingly convinced it is real.  Somehow I got on the mailing list of the "Environmental New Network" and got this press release:

Eco-Friendly Snow Thrower Is Alternative To Belching Snow Blowers

Sno Wovel Quietly Outperforms Snow Blowers Without Emissions, Noise, Strain

New Canaan, CT. November  9, 2009 -- Structured Solutions II LLC announced the launch of their newly-designed wheeled snow shovel this fall. The Sno Wovelâ„¢ is the only non-combustion alternative snow removal device performing equal to or better than a snow blower. The all new folding frame Sno Wovelâ„¢ debuts in a new category of hybrid tools, combining safety for the user, protection of the environment and high-performance. No fuel, fumes and deafening noise to harm the environment or the operator "“ no electric cords to tangle with. The Sno Wovel is 2-3 times faster than shoveling and comes with a folding frame design for easy and portable storage.

This seems like a fairly unsatisfying alternative to a big honkin' snow blower, but I live in Phoenix so what do I know?

That I never get my business in a situation where I have to spend $45,000 just to lay off a worker.

General Motors is offering buyouts to virtually all of its remaining hourly workers, becoming the latest automaker to try to cut labor costs by giving nervous workers an incentive to leave the company.

The move follows a similar move by Chrysler LLC, which made an offer to its hourly workers on Monday.

The GM (GM, Fortune 500) offer, which takes effect Friday, is less lucrative than the deal proposed by Chrysler, or even offers that GM has made to its hourly staff in the past. The automaker will give most of its 62,000 U.S. hourly workers $20,000, as well as a voucher good towards the purchase of a GM car worth $25,000.

In the past, GM offered between $45,000 to $62,500 to workers to retire early, and $140,000 to employees who left the company and agreed to give up post-retirement health care coverage. Those offers were all cash.

Seriously, is this driven by GM contracts, or is this just GM's choice as an alternative to firing everyone?  There are cases when it makes sense for a company to go through the added expense of worker buyouts vs. layoffs.   The buyouts avoid the bad press of a layoff, they help maintain the company's reputation in the remaining workforce and community, and may not be a bad investment for a company temporarily on hard times that knows good times, and the need to hire more quality employees, are just around the corner.

But seriously, do automakers really have anything to lose at this point to lose?  And if the main reason for buyouts over layoffs is reputational, is this really what we want our tax money funding, the maintenance of the good name of GM management?

I have no problem if someone wants to compete out there in the free market producing fuel from corn or switchgrass or whatever.  But we have got to stop the subsidies right now, before it is too late.  Biofuels do absolutely nothing, zero, zippo to change CO2 production, and some studies show they make CO2 output worse when you consider the whole production cycle.  This is not to mention the effect biofuels will have in putting more wild and forest land under the till. 

I can't see any conceivable benefit to the economy from subsidizing biofuels, except some hazy notion of energy independence which has limited economic value and which will never be achieved with biofuels  (we will have jacked up the price of corn so high we can't feed cattle long before biofuels make even a minor dent in oil imports).  My only guess as to true motivation is that people want to spite Exxon and Shell, but if you don't like those companies, you really aren't going to like Archer Daniels Midland. 

Biofuels, given current technology, are a pure product of politics.  They are a massive subsidy of Midwestern farmers that the recipients can claim is not really a subsidy.  If the first presidential primary were in Nevada rather than Iowa, you would never hear a word from politicians about ethanol.

But here is the reason we need to end the subsidies right now.  [emphasis added]

A $400-million integrated biodiesel and ethanol refinery the first
complex of its kind in North America will be built in central Alberta.

Led
by Dominion Energy Services, LLC a Florida-based group with pioneering
ties to Calgary's natural gas marketing sector investors that include
$45-billion US private equity fund The Carlyle Group LLC and affiliate
Riverstone Renewable Energy Infrastructure Fund I, LP said Monday they
have finalized plans for the facility....

Alberta Agriculture Minister Doug Horner noted the "world-class"
Dominion plant follows the provincial government's recent, $239-million
over five years initiative to boost biofuels production. The province
will provide a 14-cent per litre production credit to the facility.  [for those rusty on the metric system, that is 56-cents per gallon or $23.53 per barrel]

Companies are currently building massive subsidy-magnets biofuel plants.  Once these investments are in place, there is going to be a huge entrenched base of investors and workers who are going to wield every bit of political power they can to retain subsidies forever to protect their jobs and their investment.  Biofuel subsidies will be as intractable as peanut and sugar subsidies and protections.

Update:  Radley Balko mentions another great example.  For various post-prohibition reasons that may or may not have made sense at the time, state laws prohibit retailers from buying alcoholic beverages straight from the manufacturer - e.g. Costco cannot buy direct from Anheiser-Busch.  Wholesalers who emerged to fill the legally required middleman role became rich.  Since then, even thought this 3-layered distribution requirement makes zero sense, it has become impossible to change it because the wealthy distributors who owe their fortunes to the requirement block every move to deregulate.

I don't know if you get these, but about twice a month we get what looks like a refund check in the mail, usually for a couple of dollars and change, from some yellow pages company.  Today we got one from "Directory Billing, LLC" for $3.25.  We get a lot of small checks for pay phone and ATM commissions, NSF check refunds, etc, so sometimes these almost slip through - be VERY careful.

Why?  Well, the check looks all normal and innocuous, but in tiny grey lettering in the background of the endorsement section on the back, there is a lot of legal verbiage that amounts to the following "by endorsing and cashing this check, you are signing up for a directory listing in some random yellow pages you never heard of for some god-awful amount of money which we will bill later".