Notes on the Biden/Harris $1.6 trillion in infrastructure spending

Data for this article is from Implementing Industrial Policy: Grants versus Tax Credits By Thomas Hochman.

At the DNC, we heard a lot about the Biden-Harris record on infrastructure. They’re right about one thing: They threw tons of cash at the issue—more than $1.6 trillion since 2021. The problem is, we have no idea where most of that money went.

Biden boasted that the Bipartisan Infrastructure Law’s $5 billion electric vehicle program had built “500,000 charging stations all across America.” As of February 2024, the actual number is eight.

Biden’s big infrastructure “wins” involve four bills: The Bipartisan Infrastructure Law, the Inflation Reduction Act, the American Rescue Plan, and the CHIPS Act. The first two alone had a price tag of almost $1 trillion. But only $1.25 billion has actually been spent.

We see the same issue with the CHIPS Act—one of Biden’s signature infrastructure bills. The law was pitched as a way to bring semiconductor manufacturing back to America. The bill appropriated $52 billion. Two years later, less than $1 billion has been formally awarded:

The CHIPS Act took a relatively simple approach: The government gives grants directly to specific manufacturers. But the IRA favored a different approach—one that has increasingly been favored in industrial policy circles: Doling out tax credits to eligible recipients.

Nearly all of these credits are uncapped, which means there’s no limit on how many the government can dole out. And because they enjoy IRS confidentiality, nobody knows how much we’re spending or what we’re spending it on.

While IRA’s original budget was roughly $369 billion, the real cost is now projected to be closer to $1 trillion over the next decade—more than triple the original price. “The spending under the law is therefore not just hard to track; it’s also theoretically unlimited.”

IRA has few restrictions on “foreign entities of concern.” In other words, the bill was pitched as a way to fund clean energy jobs for Americans—but a lot of the cash is probably going to China, which dominates the industries the IRA is pouring cash into.

key feature of the IRA is its relatively few restrictions on foreign entities of concern. According to an analysis from the Wall Street Journal, as of early 2024, China-based companies were responsible for nearly a quarter of new U.S. domestic solar capacity announced since the law’s passage. This has led many Republican members of Con­gress to argue that the IRA, despite its ostensibly domestic focus, represents a handout to the Chinese Communist Party. Indeed, many IRA-funded companies will source their raw materials from Chinese manufacturers and their components from Chinese suppliers. Less appreciated, however, is the fact that when Chinese firms inevitably profit from these American tax dollars, it will be nearly impossible to prove it.

The IRA credits come at a time of increasingly aggressive Chinese industrial competition. In spite of a growing number of restrictions on federal funding for purchases of foreign goods, Chinese companies have made explicit, and often successful, efforts to access U.S. government grants. BYD USA, an American subsidiary of the Chinese electric vehicle manufacturer BYD, has successfully secured funding through the Bipartisan Infrastructure Law’s Clean School Bus program. The Chinese battery manufacturing behemoth CATL, meanwhile, has partnered with Ford to secure federal incentives for Ford’s Michigan-based battery plant.

Elsewhere, U.S. reliance on Chinese manufacturing has led to the rollback of the very provisions that were meant to increase American manufacturing independence. The $7.5 billion National Electric Vehicle Infrastructure (NEVI) program, for example, was passed alongside the Bipartisan Infrastructure Law’s “Build America, Buy America” require­ment, which mandated that the majority of the cost of all EV charger components come from components manufactured in the United States. But within less than a year of the law’s passage, the EV charger manufacturing industry requested a waiver from the requirement, citing supply-chain constraints and limited domestic production capacity. The Department of Transportation obliged. Eight months later, Autel Energy, the U.S. subsidiary of the Chinese company Autel Intelligent Technology Corp., started production on its NEVI-compliant electric vehicle chargers at its plant in Greensboro, North Carolina.

Most of these examples are from grant programs, spending which is designed to be much harder for Chinese firms to access compared to IRA tax credits. So while Chinese companies have been able to secure U.S. federal funding in spite of rules around foreign entities of concern, most IRA credits don’t have those rules in the first place. In short, even in highly regulated, broadly transparent government spending programs, U.S. taxpayer money is going to Chinese companies. What must it look like, then, when it comes to lightly regulated, unaccountable tax credit schemes? Answering this question requires first understanding just how these tax credit programs are designed.

as-of-right tax credit programs, which make up the majority of those in Biden’s infrastructure laws, are inherently obscured by the tax code. With the as-of-right structure, eligible companies can claim credits on their tax returns without needing to apply or be selected by a government agency. While this approach eliminates administrative hurdles, it also protects recipient information, as the credits are claimed through the confidential tax filing process. This lack of transparency has been a consistent feature of as-of-right credit programs, from the Energy Policy Act of 2005 to the American Recovery and Reinvestment Act of 2009.

But the Inflation Reduction Act goes a step further, adding an additional layer of complexity that sets it apart from the federal tax credit programs of the past. New in the IRA is a funding mechanism known as transferability, under which companies generating credits can sell them directly to unrelated third parties in exchange for cash, tax free.

Consider a real-world example: Ashtrom Renewable Energy, a renewable energy developer, is constructing a roughly 400-megawatt solar project in Texas called Tierra Bonita. Through this project, Ash­trom expects to generate around $300 million in production tax credits (PTCs) over ten years. In the past, Ashtrom would have needed $300 million in tax liability over that decade to fully reap the value of the credits. Alternatively, they could have partnered with tax equity inves­tors to monetize the credits. But with transferability, Ashtrom can now simply sell the $300 million in PTCs to an unrelated company with sufficient tax liability to absorb the credits. In October 2023, Ashtrom announced that they had signed a tax credit transfer agreement to sell the Tierra Bonita PTCs to an unnamed institutional buyer, described only as a “highly rated U.S. institutional entity.” Ashtrom will get cash upfront, and the buyer will get to offset its taxes over ten years.

But at the same time, transferability adds yet another layer of obscurity to government spending, as demonstrated by the Ashtrom sale. There’s no way for the public to see who is buying credits, at what price, and from whom, unless voluntarily disclosed.

Here, too, there are opportunities for foreign competitors to benefit. The IRA’s New Clean Vehicle Credit comes with a foreign entity of concern provision that aims to limit the use of Chinese products. The Advanced Manufacturing Production Credit may be subject to a similar restriction in the final IRS rule. But these provisions cover only the first layer of eligibility, not the secondary market, meaning that while foreign entities and their subsidiaries may not directly qualify for credits, nothing prevents them from buying credits on the transfer market from a broker. A Chinese state-owned enterprise could acquire U.S. clean energy tax credits, and the public would never know.

There’s every reason to think that the secondary market will be huge. In the first six months following the release of the IRS guidance around transferability, $7–9 billion worth of tax credits changed hands, accord­ing to one report. With the IRA providing hundreds of billions of dollars in credits over the next decade, the market has substantial room to grow. If even a fraction of those credits are transferred, annual trading volumes could easily reach the tens of billions.

Reports from intermediaries suggest that the institutions that have historically been involved in tax credit deals are the same ones buying up IRA credits today: banks, insurance companies, and other major corpo­rate taxpayers. This is not to mention the benefits to the many syndicators, tax advisers, and insurers that have emerged in the wake of the IRA’s passage, all of whom are skimming cents off the top of every dollar of credit value.