Big Banks Using Tax Credits and Bailout Profits to Push Agenda in Congress

In an attempt to revive their congressional influence, U.S.-based banks spent more than $47 million on lobbyists in the first three quarters of 2011—a new record, according to the Center for Responsive Politics, a research group that tracks federal lobbying.

If the current pace holds through the end of the month, 2011 will mark the sixth consecutive year that the for-profit banking industry has spent a record amount on lobbying. Leading the coven in payouts this year and upping its ante by 80 percent over the same period in 2010 was Wells Fargo, having spent more than $6 million on lobbyists through late November.

Proponents consider lobbying to be necessary and argue that it is in part the result of a system that demands a lobbying budget in order to have a congressional audience. Critics, meanwhile, see the lobbying efforts as simply another business decision made in pursuit of profits.

However, new information about the extent of the banking crisis of 2008-09 may threaten the banking industry’s attempts at maintaining influence in Congress—and begins to reveal the spider web of factors at play in the fallout from the banking crisis and the subsequent bailout.

While Wells Fargo was spending then-record amounts on lobbyists following the banking crisis, another group alleges that Wells Fargo became one of the largest “tax dodgers” in the United States. A study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy says that after receiving a $25 billion dollar taxpayer bailout, despite amassing $21.8 billion in profits between 2008 and 2010, Wells Fargo found a legal way to limit its liability to the nation. If the bank had been assessed at the usual 35 percent corporate income tax rate, it would have paid the IRS nearly $18 billion, the study said.

Despite boasting $1.142 trillion in assets, controlling more than $797,541,000 in domestic deposits and having a rise in profit by 21 percent—or $4.06 billion—in the first three quarters of 2011, the banking giant paid no taxes in 2009.

Other banks cited in the “tax dodgers” study as having made profits but paid no taxes in at least one of the last three years were Goldman Sachs, PNC Financial Service Group, State Street Corporation, and Capital One Financial Corp. The total income tax subsidies for the banking industry from 2008-10 were listed at $37.4 billion, an amount equal to eight times what the industry spent lobbying to maintain those tax breaks.

Now, in a separate effort to minimize certain tax responsibilities, four U.S. banks are also suing the U.S. government to recover more than $1 billion in tax credits that the Internal Revenue Service (IRS) has specifically denied.

The suits center on Structured Trust Advantage Repackaged Securities—also known as “STARS deals”—and have become the face of a debate over tax arbitrage that is raging between multinational banks and the government. Foreign tax credits are designed to keep a taxpayer from being taxed twice, but some of the STARS deals currently being debated involve a company in one country making a single tax payment, which ultimately nets tax credit and other benefits for two companies in two countries.

Tax arbitrage is legal, but the system is extremely complex, leaving room for potential abuse. The crux of the issue now is whether or not the deals in question constitute reasonable business practices or an exploitation of international tax systems.

The IRS finally seems to have decided that such deals, which have been taking place since the 1990s, are a perversion of U.S. tax law and has begun disallowing the tax credits. However, the IRS crackdown is less the story than is the fact that BB&T, Bank of New York Mellon, Sovereign, and Wells Fargo each are suing the government for having denied the credits, even as light is shed on the full extent of their profits from the 2008 bailout.

A new report by Bloomberg News reveals that the banks’ situation at the time of the bailout was even more dire than the official record revealed and says that since the bailout, bank profits and tax exemptions were then diverted to lobbyists, who have worked to preserve the status quo and perpetuate the very system and practices that contributed to the economic collapse in the first place.

Based on information obtained through the Freedom of Information Act, the report reveals that the Federal Reserve Bank committed $7.77 trillion to big banks around the world during the 2008 financial crisis without congressional knowledge or approval—and has since worked to keep the details under wraps.

“The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret,” the Bloomberg report said. “Now, the rest of the world can see what it was missing.”

Of course, all of this is in addition to the extensive bailout that was already well-publicized. According to a formal presentation by American Bankers Association (ABA) Senior Economist Keith Leggett, in the year following the 2008 bank crisis, the United States government and its taxpayers spent $14.1 trillion to bail out the financial system the bankers themselves helped to ruin. In perspective, the historically high U.S. national debt currently sits at $16.7 trillion.

After being saved by the bailout, banks pocketed billions of dollars in income and gave out millions of dollars in bonuses, thanks in large part to the Federal Reserve’s below-market rates. These profits not only saved the banks from failure, but contributed to the banks’ financial capacity to lobby lawmakers in the face of increasing regulation and scrutiny.

As more and more information is revealed, the web of cause and effect stemming from the bank bailout only becomes more tangled. What is clear is that a number of the big banks saved by taxpayer dollars are now able to legally sidestep their own tax responsibility.

Rather than helping to preserve the flawed system that led to the bailout in the first place, Congress may need to brush aside the current flood of bank lobbying like as many old cobwebs. Otherwise, big banks will not only be managing to dodge taxes, but will be successfully avoiding the scrutiny and reform that U.S. taxpayers anticipate.


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