How the Bush Treasury Department Helped its Friends and Screwed America
In the waning days of the criminal enterprise known as the Bush Administration, it has been revealed that the Treasury Department has granted massive tax breaks to corporations while world attention is focused on other matters. A windfall of possibly $140 billion was achieved when a provision of the tax code was changed by a slight of hand.
No one in the Administration is taking direct credit for this fraud. However, the ideological underpinnings can be traced back to a 2007 memo written by two tax policy officials, Eric Solomon and Robert Carroll. The elimination of the “offending” rule serves as tribute to the infamous “torture” memoranda issued by the U.S. Attorney General Alberto Gonzalez, which was used as the legal underpinning for allowing waterboarding and other forms of prisoner abuse.
The Treasury Department memo sanctions the elimination of an I.R.S. rule that was established more than 20 years ago. In 1986, Section 382 of the tax code was established to limit the sheltering of profits through the creation of shell companies whose only “value” were the losses they held. This situation arose often in situations where a company acquired another company that was losing money. The losses from the acquired company could be used to offset profits made at the acquiring company.
While the idea of offsetting profits from losses incurred by buying another company may be subject to some debate and regulatory evaluation in the arcane world of tax policy, the Bush Administration and the Treasury Department bypassed the whole exercise through executive fiat.
Rather than go through a regulatory review process, consult with Congress or engage in some other form of democratic process, the Treasury Department wiped the slate clean and opened the door for a massive gift to the banking industry. The rule change came just 24 hours after Congress voted down the original bailout legislation in October. A number of experts named by The Washington Post suggest that this move was patently illegal.
Benefiting from this change were several major banks that have reaped the rewards of this fraud. Wells Fargo Bank is at the top of that list.
The Wells Fargo Ruling
Wells Fargo Bank was looking to acquire Wachovia Bank. Wells Fargo had made some furtive attempts at acquiring Wachovia but had walked away from the deal because the numbers didn’t work. However, once Section 382 was eliminated, it created a $25 billion incentive for Wells Fargo and the deal went through within hours.
According to the Washington Post, two more bank mergers were completed on the coattails of this regulatory scheme. PNC acquired National City and saw a $5.1 billion savings from the repealed regulation. Banco Santander bought Sovereign Bancorp and is expected to see a $2 billion savings from the change in the law.
By one account, this questionable regulatory action will cost taxpayers as much as $140 billion in lost tax revenues. Unfortunately, the floodgates have been opened and to disallow the tax breaks granted to these companies in the current economic climate would ensure a possible meltdown in the capital markets. Somehow, hearing Treasury Secretary Paulson announcing to the public that “we made a mistake and the repealed tax rule will now go back into effect. Wells Fargo, you now owe us $5 billion in taxes,” sounds like financial suicide even to the economic anarchists amongst us.
The Means Justify the Ends
I am reminded of an interview I heard on National Public Radio shortly after 9/11. Interviewed by Diane Rehm, Lynn Chaney, the wife of Vice President Chaney made the argument that the use of torture was justified as a means to an end – the protection of America – regardless of it illegality under the Constitution. The trumpets of corruption blare as the anthem for all subsequent deregulation, refusal to enforce laws and convoluted interpretation of the law that have been the hallmarks of this administration.
Undoubtedly the Treasury officials responsible for this fraud believe that the means justified the ends. However, when the rule of law gets tossed out the window, far greater risk is imposed on the American system of government, which is in tatters from its many years of manipulation by the Administration and its friends in high places.
Of course, we are now learning today that this shadow governance is not limited to the financial world. In today’s papers, it’s reported that George Bush’s Defense Secretary, Donald Rumsfeld issued a secret memo that authorized incursions into other countries to pursue terrorists.
Popularity: 3% [?]
Sphere: Related Content
This month the UK-based NGO Global Witness issued a new report asserting that major international banks perpetuate corruption in the world’s most fragile countries. This is not a new assertion by any means, but in these times when the nefarious impact of unbridled greed has put the global economy in jeopardy, it is a particularly urgent message. The demand by shareholders for corporate responsibility is growing, but it still has a long way to go.
