This IMHO is an attrocity for President Elect Barack Obama has to step in and immediatly be called to whip the party into shape and take a possibly dangerous move that I am sure could have negative consequences. This is not his doing but it has been facilitated in part by the spineless Democrats in Congress. This additional corporate banking wealfare rule change was diaried earlier by AnakSeria here, but failed to explore implication of this article first reported this morning in the Washington Post.
With my limited financial knowledge we will discuss the implications of this tax change which according to many in the tax field may in fact be illegal, just another example of Bush and Company ignoring the laws or reinteruptating them for their buddies benefit.
The change involves a little known section call Section 382 which was enacted twenty two years ago by Congress to close a tax shelter benefit for large companies who could hide the true nature of their profits by acquiring smaller, sometimes losing companies and writing of the acquisition as a lose claiming a tax deduction for said loss. This law in part is something the banking industry had long sought to overturn, but no one felt it could be. The reason being is the public outcry it would have created, and most experts think only Congress which specifically enacted the legislation to close this loop hole abused by corporations to hide profits in shell companies.
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.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
So Congress now being aware and outraged hid this change for fear it would spark public outcry and be declared illegal but create a financial problem for banks that had immediately sought to take over other less financially profitable banks, with an end result being it would cause a steeper decline economically then the crisis we already were in. This change called the "Wells Fargo Ruling" signed by Treasury Secretary Paulson is thought to have possibly been created to aide certain specific banks. The other proponent for this change that lobbyist had gained no traction at all with Congress to over turn for twenty plus years also was supported by the biotech industry, which routinely buys up small struggling innovative companies with one or two good ideas or patents. Somehow their tax burden is substantially decreased.
No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.
DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.
In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
"We're all nervous about saying that this was illegal because of our fears about the marketplace," said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. "To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."
Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. "Congress wants to help," Grassley said. "We also have a responsibility to make sure power isn't abused and that the sensibilities of Main Street aren't left in the dust as Treasury works to inject remedies into the financial system."
Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.
Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.
But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
"None of us wants to be blamed for ruining these mergers and creating a new Great Depression," one said.
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Several legal experts in the story liken it to the war authorization bill for Iraq. There are under the radar objections, but like after 9/11 "no one wanted to be called unpatriotic" and we all know where that has gotten us. This little change is so commonplace for the Bush Administration. It is characteristic of how it has operated for eight years with no oversight being offered by Congress. After the elections of 2006 a Democratic Congress still failed to do anything more rather then offer letters of "outrage" or "strongly worded" letters of protest. Nancy Pelosie in my opinion is as responsible for this current financial debacle as George Bush after she blocked impeachment hearings.
So as I mentioned in my title and opening it is time for "we the people of change" to begin demanding that our Congress, and President Elect hit the ground running with guns blazing to undo many of these illegal policy changes. What makes this little change so dangerous and embarrassing is no one can say the full extent of the revenue loss to the government which is drowning in debt that large companies have created through their huge greed and lack of oversight that the American taxpayer is asked to fund.