“The government is consciously forfeiting future tax revenues. It’s another form of assistance, maybe not as obvious as direct assistance but certainly another form. I’ve been doing taxes for almost 40 years, and I’ve never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts.”

-Robert Willens, an expert on tax accounting

>

The ongoing transfer of wealth from the middle class to the top 1% continues unabated.

The Treasury Department, via the IRS, has made a terrible deal with Citigroup for TARP repayment: They repay $20 billion in TARP money, and in exchange we give them keep $38 billion in tax abatements.

WTF?

The Washington Post has the scoop:

“The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.”

The looting of the Treasury, begun in panic under George W. Bush, continues in ignorance under Barrack W. Obama.

>

Source:
U.S. gave up billions in tax money in deal for Citigroup’s bailout repayment
Binyamin Appelbaum
Washington Post, December 16, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/15/AR2009121504534.html

See also:
A Tax Break for Citigroup With Payback of Bailout
ERIC DASH
NYT, December 15, 2009

http://www.nytimes.com/2009/12/16/business/16citi.html

Category: Bailouts, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

48 Responses to “Citi TARP Repayment is a Tax Dodge”

  1. ews says:

    “Continues in ignorance?” Don’t insult my intelligence . . . Obama knows exactly what he’s doing. Go read Glenn Greenwald’s post in Salon for the same story in a different industry (healthcare).

  2. torrie-amos says:

    anyone who follows this stuff religiously should not be surprised, why i always say insanity abounds, how many laws or favors will they change or give or break to stop naturally what should happen, more and more of these things make me bearish

    one caveat is i finally understand the true meaning of moral hazard

  3. wally says:

    I guess the outlaws now own the town. If the ballot box cannot restore fair and open government. what is left?

  4. MayorQuimby says:

    Complete outrage. When some nutcase goes beserk because of all of this I will not be surprised in the slightest. .gov seems to be determined to push the masses to the breaking point and right out in the open.

  5. Moss says:

    The exclusion for Wells Fargo is much more egregious as the change in ownership was between two private entities. While this exclusion is not right the change in ownership was not one of choice.

  6. ben22 says:

    At this pace Timmy should be in line for Person of The Year next year. You do enough good deals like this one and you move right to the top of the list.

  7. LeeX says:

    This is simply heartbreaking. The fix is in, we’re all screwed!

  8. teraflop says:

    The looting continues by whatever triumvirate pulls the puppet strings; *that* shows the presence of a continuous (regardless of whoever appears at funerals or makes scripted speeches for the masses) governing force in the shadows, as opposed to a British-style Shadow government.

    Sure wish I could have the support of the combined efforts of united departments in the upcoming personal income tax season instead of the combined efforts of ignorant, uncaring, and over-taxing thugs.

  9. Rikky says:

    an in other news at The Onion, Ben Bernanke wins Time magazine’s 2009 man of the year award. Oh wait, that really happened. Bizzarro world we live in.

  10. call me ahab says:

    awesome-

    the USG- a TBTF bank’s BFF

  11. Rikky says:

    >>Complete outrage. When some nutcase goes beserk because of all of this I will not be surprised in the slightest. .gov seems to be determined to push the masses to the breaking point and right out in the open.

    anyone ever read The Running Man? there’s little doubt in this person’s mind that we’re moving ever closer to a place where news coverage will be not just purposely manipulated but altered to tell whatever story TPTB want to communicate to the masses. Freedom and liberty are slowly being replaced with tyranny and this is a textbook example of it.

  12. Andrew U says:

    Man of the Year, 1938
    http://www.time.com/time/magazine/article/0,9171,760539,00.html

    Greatest single news event of 1938 took place on September 29, when four statesmen met at the Führerhaus, in Munich, to redraw the map of Europe. The three visiting statesmen at that historic conference were Prime Minister Neville Chamberlain of Great Britain, Premier Edouard Daladier of France, and Dictator Benito Mussolini of Italy. But by all odds the dominating figure at Munich was the German host, Adolf Hitler.

    Führer of the German people, Commander-in-Chief of the German Army, Navy & Air Force, Chancellor of the Third Reich, Herr Hitler reaped on that day at Munich the harvest of an audacious, defiant, ruthless foreign policy he had pursued for five and a half years. He had torn the Treaty of Versailles to shreds. He had rearmed Germany to the teeth— or as close to the teeth as he was able. He had stolen Austria before the eyes of a horrified and apparently impotent world.

    All these events were shocking to nations which had defeated Germany on the battlefield only 20 years before, but nothing so terrified the world as the ruthless, methodical, Nazi-directed events which during late summer and early autumn threatened a world war over Czechoslovakia. When without loss of blood he reduced Czechoslovakia to a German puppet state, forced a drastic revision of Europe’s defensive alliances, and won a free hand for himself in Eastern Europe by getting a “hands-off” promise from powerful Britain (and later France), Adolf Hitler without doubt became 1938′s Man of the Year.

    Read more: http://www.time.com/time/magazine/article/0,9171,760539,00.html#ixzz0ZrQrCtQ0

  13. bsneath says:

    We live in a fraudulent society. Anyone out there proud to be an American right now? I am disgusted.

  14. Lugnut says:

    Mmm, Corporitism stew. Tastes like chicken; and everyone’s at the table.

  15. Maria Cantwell and John McCain are considering trying to reinstate Glass-Steagall.

    Over the past year, I’ve heard a lot of chatter about bringing back Glass-Steagall, but no one has put details on the table yet.

    Cantwell has been aggressive on derivatives and Volcker seems to be stepping up on this, so maybe there is something real here. Steny Hoyer is also talking about bringing back Glass-Steagall.

    House Discussing Glass-Steagall Revival, Hoyer Says
    http://bloomberg.com/apps/news?pid=20601087&sid=arMrSVjq4cts&pos=1

    The U.S. House is considering reinstituting the Depression-era Glass-Steagall Act, which barred bank holding companies from owning other financial companies, Majority Leader Steny Hoyer said.

    A renewal of the 1933 law “is certainly under discussion” by House members, Hoyer told reporters in Washington today. The Glass-Steagall law was repealed in 1999 to help pave the way for the formation of Citigroup Inc. by the $46 billion merger of Citicorp and Travelers Group Inc.

    Cantwell/McCain: An Odd Post-Crash Couple
    http://www.newsweek.com/id/226938

    John McCain lost the 2008 presidential election because of the financial crisis—at least that’s what his chief strategist, Steve Schmidt, suggested. “We were three points ahead on Sept. 15 when the stock market crashed. And then the election was over,” Schmidt said in a postmortem earlier this year. McCain was tarred with the regulatory failures of the Bush years, and it didn’t help that he had been a longtime acolyte of the Senate’s dean of deregulation, Phil Gramm, who once derided Americans as “a nation of whiners.” McCain also seemed to have few new ideas of his own about how to address the financial panic.

    More than a year after the election, the Arizona Republican is looking to repair that reputation by joining up with Democratic firebrand Maria Cantwell to propose something that will be anathema to both Wall Street and the Obama administration. According to two congressional sources, the two maverick senators want to reinstate Glass-Steagall Act, the Depression-era law that forced the separation of regular commercial banking from Wall Street investment banking. The senators’ proposal echoes a failed amendment introduced in the House last week by Rep. Maurice Hinchey of New York.

  16. ZackAttack says:

    Wow, $38b in tax breaks to pay back $20b.

    Borrow for free at the discount window, lend it at 29.99%.

    There might be a business model in there somewhere…

  17. Mannwich says:

    Yawn. I can’t even summon the energy to feign outrage anymore. Next.

  18. thinkingNSymbols says:

    Has any of the folks commenting here actually read the news accounts of what the tax exception is? The tax law in question is to prevent firms that buy down and out companies to write off the losses of the acquired company. Without such a law this could have perverse incentives.
    Because the payback to the govt is, by tax law, a change in ownership, since 34% of the govt ownership is going back to C, they’d not be able to write off the losses.
    Excepting the tax in this case is reasonable and far from nefarious plot as agitated by some trying to pander to the simpletons who now regal in uncritical negativity like its sport. Its getting old and about time we start applying some objective criticism rather than the mistaking negativity for sophistication.

  19. ella says:

    Crony predatory capitalism at its best.

    There is no representation of the people, only the elites. The elites control both parties. We the people are SUCKERS, who must pay full price ++++ for our health care, pharma, energy, financial services, education, taxes and on and on. Our government makes sure of that.

    Why bother supporting either party with our labor, contributions, or votes. They will do nothing for us.

  20. rickety rick says:

    “continues in ignorance” my *ss. brilliant thieves elected by willing dupes. ’nuff said.

  21. wunsacon says:

    >> The ongoing transfer of wealth from the middle class to the top 1% continues unabated.

    Since 50% of the “wealth” was owned by the top 1% before the crisis, it means that FIFTY CENTS OF EVERY DOLLAR EITHER SPENT (OR PLEDGED TO GIVE CONFIDENCE IN ASSET VALUES) WENT TO BAIL OUT THE TOP 1%.

    The top 1% was going to be wiped out by cascading failures of the banks AND heavily indebted companies.
    - Equity? Nearly 100% gone in most companies.
    - Bonds? Big haircut there, too.
    - Your mansion(s)? If you owned it outright, then you still own it. But, if you had borrowed even $20m from a line of credit somewhere to buy that $50m mansion that’s now worth $15m, you’ll probably walk away.
    - Rental properties? Worth half what you paid. Or less.

    So what the government bailouts have done is maintain-and-extend the gap between rich and poor. Or, to say the same thing from another perspective: the bailouts prevented a de facto jubilee from occurring.

    Now, what would’ve happened to the bottom 99% without those bailouts? Those of us not already working directly or indirectly for the government/FIRE sector, need a JOBS PROGRAM anyway. Would’ve it been more urgent? Yes. And more obvious. So, something would’ve been done about it sooner. It’s as likely that we’d be better off without these bailouts than with them. Correction: we’d be better off, because we would’ve all started with much less debt — not remained debt slaves to the banks and, indirectly, the top 1%.

  22. jritzema says:

    Tax law is always changed to encourage or discourage behavior. In this case it is just changed to get Citi off the government dole sooner. I fell a little better that they are not hiding behind some tax dodge like a reverse morris trust transaction and are just more blatantly tell you that Citi can use NOLs going forward. Citi’s tax benefit still requires enough earnings going forward to utilize the NOL. Treasury being able to sell now will avoid the losses when Citi fails and the FDIC uses the new resolution authority to spread pain to the whole capital structure. Why the US government thought it was a good idea to save a bank where 80% of depositis are foreign I still don’t understand.

  23. tradeking13 says:

    Is there a better country to move to, people? No, seriously, because I am looking. This place is so screwed.

  24. Patrick Neid says:

    If you look at the way Citi has been trading it is not a stretch to imagine they will never be around for the supposed tax benefits.

  25. call me ahab says:

    wunsacon-

    everything the USG and Fed have done is to support asset prices- period- matters not that equities are over valued and home prices have not fallen enough-

    the support of asset prices was the only goal- credits to buy homes, credits to buy cars, USD to banks to drive up equities, etc, etc, etc- only one purpose- to drive up demand and keep assets from declining

  26. Mannwich says:

    Exactly, ahab. When you come to terms with that, then everything else “makes sense”. When I read this point in Barry’s book, which is, I think, one of its main themes, I had an “ah-ha” moment. Everything that the feds do is designed to do one thing and one thing only, support asset prices at all costs to the sheeple, because the whole thing falls apart for the elite (and status quo) if there is any significant deflation here and worldwide.

  27. wunsacon says:

    Ahab, yes, I agree. But, what’s one of the byproducts? Whereas most people (in the political class) were complaining just 3 years ago about the 2nd Gilded Age and wanting to “do something” about the record, increasing gap between rich and poor, the government stepped in in a way that maintains that situation.

    The top 1% owes their continued wealth to government.

  28. ashpelham2 says:

    I’ll make the argument that the support of asset prices is not as bad as the alternative: everything we own becoming worthless. A significant continued drop in home prices and equity prices is just bad for everyone, as if what we’ve already seen isn’t bad enough.

    I’m not against you in that things are overvalued. Homes never should have gotten as high as they did, but this is largely because every authority or policy-maker stood by and let it happen. Laws meant to protect us were repealed or outright broken. Now, we’re too far in to go back. We can’t roll back the price of gas/milk/bread, so why should the things we own be discounted for the “new normal”?

    The tax thing with Citibank is in no way surprising to me. Any incentive the taxpaying, shareholder public of Citi was ever going to have to support this bailout was either false, or would be raided before it ever trickled down. Gub’ment just can’t keep it’s hands out of the cookie jar. The slightest hint of revenue that they can pillage, believe me, they will. It’s akin to prison rape. You’ve got no choice but to allow it to happen, because they’ve already got your pants down.

  29. bsneath says:

    BR Say: The ongoing transfer of wealth from the middle class to the top 1% continues unabated.

    Here are some of the steps being taken by the middle class in the boonies to generate cash flow as they try to maintain their lifestyles – either out of pride, for immediate gratification or in hope that somehow tomorrow will be better:

    Stop paying into 401K and IRA plans
    Draw down existing 401K and IRA accounts
    Participate in an “informal social safety net system” of family support.
    Stop making mortgage payments
    Max out credit cards with plan to stop paying and go to cash
    Cancel health care insurance and pay as you go

    All of these actions are in an attempt to maintain cash flow and lifestyles but most are only temporary sources. Thus while these various cash sources are in place, spending stays up and on the surface, the economy does not seem all that bad. However, once the retirement plans & family members are tapped out and once the banks shut down the sources of “free rent” & “free credit”, the real impacts of the wealth shift from the middle class to the “upper 1″ will be felt. I think we are just now entering this second and potentially more damaging phase. Time will tell.

  30. Marcus Aurelius says:

    thinkingNSymbols:

    Perverse incentives are the direct result of the complexity of our tortured tax code. Your explanation of how the “losses” will (or will not, depending on if I understand your comment correctly) be written off supports the assertion. We are looking at somebody writing off huge losses (I’m not sure from your comment if it’s the government or C), when we should be discussing orderly dissolution via bankruptcy.

    If this was fair and above-board — that is to say, if it were a legitimate tax offset or write off — there would be no need for a ‘deal’ to be made (BTW: didn’t we already have a ‘deal’ with these PsOS?).

  31. hue says:

    awww, what’s a few more billions amongst friends. we’ve spent $3 trillion, which is like spilled milk, not getting it back http://bit.ly/52lWXv

  32. Bokolis says:

    Not that I previously had much faith, but this should remove any shred of doubt from everyone’s mind that people have fewer rights than corporations. We have been relegated to the status of Kurds under Saddam and are governed by a rogue entity. As I like to often point out, our founding fathers rebelled for a lot less.

  33. bsneath says:

    Marcus Aurelius Says:

    Also, if I get the gist, only a portion of the tax credit benefit goes to the government and the taxpayer in the form of greater proceeds when the government’s share is sold. The balance would be a future extraordinary tax benefit to Citi. Not completely but somewhat similar to the Goldman Sachs/Buffet deal that was squashed a while back.

  34. rustum says:

    I dont see words like “The ongoing transfer of wealth from the middle class to the top 1% continues unabated ” from BR more often.

  35. call me ahab says:

    wow ThinkinN- that’s cool-

    all so logical-

    as if the tax code makes any sense

  36. rj says:

    Why didn’t the educated blogs pick this up? All the talk of how newspapers suck the tit and the blogs are the ones that really cover news, yet not one source ever even hinted at this, and it took a pissed off insider to leak it to the WaPo.

    We have been relegated to the status of Kurds under Saddam and are governed by a rogue entity. As I like to often point out, our founding fathers rebelled for a lot less.

    Thenget out our guns and start shooting. It’s really that simple people. If you say “that’s nice in theory, but I prefer my comfortable life where I’m only a rebel on the internet where I can hide behind anonymity and no threat occurs to how I live my daily life”, then you’re a coward. I’m sick and tired of these “anonymous” posters that whine about everything, but never do anything about it. If you feel that way, go do something about it.

  37. Blurtman says:

    Maria Cantwell also voted against TARP God bless her. Her Senate counterpart, Patty Murray, who is truly a dim bulb, voted for TARP.

    What do you think about Cantwell for President?

  38. Halp says:

    Tax dodge is right. I’d also call it fascism. I find it outrageous.

  39. jpmist says:

    Let me see if I have this straight – our Federal Government, having taken an ownership position in a public corporation, Citibank, now gives Citi a specific $40 billion tax break so it can keep it’s balance sheet healthy? Yikes! Like we didn’t see that one coming. . .

    How soon do I get my dividend check from Citi?

  40. Marc P says:

    What is most troubling to me is that one of the foundations of the American legal system is equal application of the law. Once a government starts making specific laws or exceptions for specific people then the rule of law is destroyed. This is a matter of fundamental fairness, and that is why the concept is enshrined in our Constitution.

    This obviously isn’t the first example, or the most egregious. For that I would cite the decision to let five banks, only five, use capital leverage up to 40:1 while all other banks were restricted.

    A slippery slope, abetted by millions of lobbying dollars, and we become a different country.

  41. Vermont Trader says:

    here is the best part…

    the C deal priced tonight at $3.15…

    the US treasury decided not to sell their shares in the end… why? b/c the government bought in at $3.25

    so much for those paper profits.. thanks for the tax break..

    YOU COULDN’T MAKE THIS STUFF UP!

  42. jc says:

    If T had sold their CITI holdings the price would have cratered immediately, instead they’ll be sitiing on a big paper loss for a loooong time. How long til CITI comes back for more USBucks?

  43. jc says:

    Did T announce their decision before the deal was priced? Did they do a plan B pricing with Trasury selling now?

  44. Since it seems that any government for any reason can change the rules of the game, I’m going to work on getting my mortgage waived tonight in a letter to my bank:

    “Dear Bank, I was thinking that my mortgage shouldn’t be a mortgage. I think it should be more like document with some suggestions for terms of payment. I’m not sure if my mortgage fits my overall lifestyle right now. And since it seems like you can change your rules, I would like to change mine. If you don’t like that idea, maybe we can compromise on another? I think that we can both solidly agree that my mortgage is “just” a few pieces of paper with words on it, and we’ll leave it at that. Please consider my request because it would make my life easier. Thanks for your time.”

  45. [...] example that just came to light. Based on a Washington Post story, Barry Ritholzt reports that the Citigroup TARP Repayment is A Tax Dodge— The ongoing transfer of wealth from the middle class to the top 1% continues unabated. The [...]

  46. [...] the TAXES on $38B, which, assuming a roughly 35% tax rate for Citibank comes to about $13B (see Ritholtz and Denninger for more on this story). The next major Citibank story yesterday was that the Abu [...]

  47. steveaustin says:

    to ThinkingN,

    its good to have a contrary voice but i think you are wrong.

    the govt gave citi $45b. $20 was a loan and $25b was for 34% equity.

    the $20b that citi are repaying is the loan, therefore there should not be any tax break for a change in ownership since the govt still have 34%.

    yep there will be another crisis to come after this one because stuff has just been swept from one place to another, namely the toxic assets bank. but govts can print money and inflate their way out of it, although its going to take some years of real gdp stagnation before that happens.

    i knew obama made a mistake when he appointed geitner. the dude hadn’t even paid his own tax bill! and all this after obama ran on a platform of honest accountability.

    don’t expect geitner to last the full term.