TARP Tax Trickery: Banks Won't Really Pay Back All $90 billion
Taking this backdoor route to dealing with the banks' payback of TARP losses allows the administration to put out some nice sound bites to the public, and then whisper in bankers' ears that the government will ease the burden of the fee by allowing them to deduct it as a business expense. Start with $90 billion, but subtract a tax deduction of 35% ($31.5 billion), and the banks end up repaying only $58.5 billion of the money taxpayers lost bailing them out.
The basis for this tax-deductible status is that the FDIC fee banks pay for insurance is tax deductible. But should that precedent be extended to a fee intended specifically to repay taxpayers for the losses banks caused by their risky behaviors? Or should the taxpayers be paid back in full?
As DailyFinance columnist Peter Cohan wrote, "The banks, of course, say 'no fair.' But I disagree. Despite wriggling in front of Congress yesterday, Wall Street is the primary culprit for the financial crisis and should pick up these losses -- especially AIG's (AIG). That's because many Wall Street banks got a back door bailout through AIG when the government made good on the credit default swap payments AIG owed the banks but couldn't pay on."
If you, too, believe the banks should pay the full cost of TARP, write your congressmen. Let them know that when they turn the administration's concept into legislation, they need to be clear: The bill should state the Financial Crisis Responsibility Fee won't be tax deductible.