The Monetization of Business Tax Credits

This Article examines the history of the development of federal incentive tax credits, from the enactment of the investment credit in 1962 to the cash grant in lieu of credits regime introduced as part of the American Recovery and Reinvestment Act of 2009, and methods for “monetizing” tax credits developed in the context of state tax credits as well as federal tax credits (and associated taxation issues). The principal thesis of the Article is that (1) the current array of federal business tax credits addressed in the Article are in the nature of subsidies rather than structural components of the computation of a “correct” tax; and (2) therefore constraining the monetization of these tax credits through the imposition of normative-based substantive requirements is inappropriate. As the Article states in conclusion, if the judgment is that tax expenditures of this kind play a useful role (i.e., they should not simply be repealed), then the articulation of the underlying goals and intended beneficiaries of current tax-based subsidies should be sharpened and our existing “delivery mechanisms” closely examined and possibly overhauled.