Wednesday, November 12, 2008

Banks to Receive Billions in Tax Breaks

According to the Associated Press, the big banks in this country are about to receive pretty huge tax breaks in addition to the money they will receive from the Federal government’s $700 billion bailout program. Specifically, the tax breaks will go to companies that acquire struggling financial intuitions that are struggling to get by. However, interestingly some experts claim that the tax breaks they get could exceed the cost of acquiring the struggling banks.

“The change could cost the Treasury as much as $140 billion by enabling firms that acquire struggling banks to use more losses incurred by those banks to offset their own taxable profits.

Wells Fargo & Co., which made a bid to acquire Wachovia Corp., just days after the notice was issued, stands to reap about $20 billion in additional tax savings because of the change, according to the analyses. Wells Fargo paid $14.8 billion in a stock deal to buy Wachovia.

The notice was issued Sept. 30 as Congress debated the $700 billion bailout plan. Some members of Congress are upset that such a sweeping tax change was issued with no public hearings or congressional input.

‘I am concerned that the notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars on top of the hundreds of billions of dollars already approved by Congress in the financial rescue plan,’ Sen. Charles Schumer, D-N.Y., said in a letter last week to Treasury Secretary Henry Paulson.

Treasury Department spokesman Andrew DeSouza said the notice was issued to provide tax guidance to firms involved in bank takeovers at a time when numerous financial institutions are struggling and their value can be difficult to determine. He said it wasn't aimed at any one specific taxpayer or transaction.”

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