A Newsweek article has found that the big banks on Wall Street are in fact too big to tax. By reviewing the settlements of fines and fees that Wall Street banks have had to pay federal agencies, the article found that those settlements are deductible from the taxes the banks pay.
“For nearly every dollar a bank or lender has pledged to pay in cash... up to 35 cents will find its way back into bank coffers, a reflection of the 35 percent corporate tax rate.”
The report found that the total cost of settlement with the six largest banks was $143.2 billion. At least $44.1 billion of that is tax deductible.Here is a list of how much each bank saved.
Bank of America received $12 billion in deductibles out of its $16.6 billion settlement deal. JP Morgan Chase is allowed to deduct $7 billion of its $13 billion deal it struck with the Department of Justice last November. Citigroup can deduct at least $3 billion of its $7 billion deal.
But why are these banks getting a tax break? Because the Department of Justice decided to pursue civil actions, instead of criminal ones. If they would have pursued criminal charges, some Wall Street bankers would possibly be in jail, facing real punishment.
In an interview with Newsweek, Brandon Garrett, a professor at the University of Virginia School of Law, questions the actions of the Department of Justice.
“It is very troubling when prosecutors announce blockbuster fines that are tax-deductible and potentially misleading to the public in terms of what the bottom line punishment actually is to the company,” Garrett says. “DOJ has never given a good explanation for why it has allowed tax-deductible settlements in those cases.”
Newsweek found a possible motive for raising civil settlement payments. The Justice Department's Working Capital Fund receives up to three percent of total settlements and can use it to improve the efficiencies of the department.
Sen. Elizabeth Warren has had a lot to say about regulating big banks for the common good.
“When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public,” she says.
Hearing about another big bank bailout or tax deduction doesn't sound like justice. Yet, the Department of Justice continues to allow Wall Street banks to find loopholes to not pay their fair share.