Root of ‘Linda McMahonism’ Is Secondary Market in Corporate Tax Credits. Will It Carry the Day in Campaign ’12?

WWE Chief Financial Officer Explains Connecticut Tax Dispute and Resolution
October 17, 2012
Hearst Newspapers: WWE Tax Controversies Create ‘Political Firestorm’ for Linda McMahon Campaign
October 19, 2012

Linda Edwards McMahon, the one-and-somehow-not-yet-done Republican candidate for a United States Senate seat in Connecticut, has reached what we can only hope will be the final three weeks of her tawdry political career.

With her final debate with Democratic opponent Chris Murphy taking place today — a format about as well designed for a policy dunce like McMahon as a steel-cage match for one of her granddaughters — we can expect the ensuing fortnight-plus to be marked by ever-more-prolific and ever-more-shrill TV commercials from the best team of cut-and-paste propagandists money can buy.

What few observers realize — I myself didn’t before reading Don Michak’s excellent story two days ago in the Manchester Journal Inquirer — is that the money behind McMahon is in turn driven by what may be the most outrageous practice in the outrageous history of corporate gouging: the secondary market in dubious tax credits. Please buckle your seat belts while a financial lightweight tries to explain what this is all about. I’ve often described the urgency of denying the wretched and sleazy McMahon family’s bids for temporal power as a battle over not Linda McMahon, but rather “Linda McMahonism.” The commodification of corporate tax credits is the ultimate in Linda McMahonism; the ultimate in the postmodernist rot of our economy and polity.

And this piece of manipulation, like all of Linda McMahonism, is a bipartisan phenomenon or a nonpartisan one — take your pick. McMahon, who historically has contributed to the campaigns of Republicans and Democrats alike, all the way up to Rahm Emanuel, has no cerebral or spiritual connection with Connecticut Republicanism; her spot on the electoral ticket is simply a “brand extension,” like Raw or Smackdown. How fitting that the creative cradle of Phineas Taylor Barnum and of her husband, Vincent Kennedy McMahon, would produce this hocus-pocus of a campaign made possible, in large part, by a chair shot of a financial instrument.

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I’ll let others coming in behind this essay crunch the magnitude of the hard numbers. In a nutshell, corporations often qualify for tax credits they can’t directly exploit. Let’s say that, within a given jurisdiction, a company has a tax bill of $250,000 but accumulates a million bucks in credits. It will either use that $750,000 in loose change — or lose it. As with junk bonds, bad mortgage portfolios, or other effluvia of our financial system, brokers step up to marry surplus tax-credit holders with other companies willing to pay at a discount for the privilege of using them on their own tax returns. And it’s all legal, folks!

The Journal Inquirer‘s Michak reports that WWE, which the McMahons co-founded and in which they maintain a large majority interest a decade after taking it public, received $22.7 million in state tax credits over the last three years and has applied for more. When Linda McMahon was CEO in 2007-08, WWE collected $10.4 million in credits under a program designed to stimulate film production in the state. In 2010, the company collected an additional $7,276,263 in credits for its television and website productions, plus an “interim infrastructure tax credit” of $5,062,711 for the company’s facility in Stamford.

As do all publicly traded companies, WWE discloses credit-brokering earnings in line items of its filings with the Securities and Exchange Commission.

Michak quoted a tax expert as opining that the trading of credits “creates no wealth — arguably it destroys wealth, by helping the Hollywood rich collect welfare from you.”

Indeed, since film tax credit-swapping is a favorite toy of Hollywood types, some critics would go so far as to call this scam an explicitly Democratic stew. I wouldn’t go that far. For one thing, there are plenty of movieland practitioners on the political right — think weird old man Clint Eastwood — though they do poll in the minority in Santa Monica and Malibu. More fundamentally, across-the-board money-grubbing is the only coherent ideology or political party in America today. And once again, Linda McMahon is Exhibit A.

Like other producers’, WWE’s credit-mongering is national in scope. As a minor film producer, its movie division negotiates sweetheart arrangements in locales such as Louisiana, in addition to Connecticut. But the pièce de résistance of this technique is the touring one-night stands of weekly television shoots of Raw (live on Monday nights) and Smackdown (generally taped on Tuesday nights for airing on Fridays). For these drive-by infomercials for future WWE house shows and monthly pay-per-views, states hand out credits, usually based on wildly inflated models of the concomitant stimulus to the local economies.

The bottom line is that the credits, resold to World Wide Widgets or Acme Arbitrage, go more or less directly into Vince and Linda McMahon’s already bulging pockets. And now Linda, probably fronting for her more intelligent and diabolical husband, has turned around and pumped scores of millions of dollars into wall-to-wall TV ads trying to beat the citizens of Connecticut into submission and persuade them to vote for her on November 6.

Will they let her, Linda McMahon, and it, Linda McMahonism, get away with it?

Irv Muchnick

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