Congress is throwing your money into a black hole

PHOTO: US Capitol

The evidence that we’re getting fleeced by both the government and the banking industry with this bailout just keeps coming in.

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion…

But we don’t really know how much this change in the tax code will cost, because the Treasury didn’t bother figuring that out.

So what changed in the tax code? Apparently a provision that prevents banks from setting up a sort of tax shelter:

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes…

Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

Joy.

The Washington Post article goes on to explain that Democrats are angry and think this change in the tax code is illegal, but of course they won’t do anything because they don’t want to destabilize the economy because it could stop some of the bank mergers we’ve seen in the last few weeks.

This entire bailout scenario has the smell or the Iraq war authorization. Congress is frightened into action by the Bush administration which predicts disaster if they aren’t given unlimited power to do things their way immediately. Then once Congress gives them that authority, it turns out they abuse it, but nobody will be punished and Congress is left weaker than before.

What makes it worse, is that it was all so predictable.

Flickr photo by kimberlyfaye

One Comment

  1. Ian

    After AIG’s recent bailout, their executives had another big party.