On September 30, in a 5 sentence notice, the Treasury Dept. eliminated Section 382 of the Internal Revenue Code, legislation created in 1986 limiting tax shelters when banks merge with one another. This tale of further unitary executive deceit was broken by the Washington Post on Tuesday. Twelve different tax experts interviewed by WaPo opined the Treasury lacked authority to make the ruling. One of them, Candace Ridgway, said:
It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops. I've been in tax law for 20 years, and I've never seen anything like this.
Why is this distressing? Because there is no law, no constitutional provision, no regulation, that gives an administrative agency the authority to unilaterally repeal an act of Congress. As clear a violation of the Constitutional separation of powers doctrine as one could ever dread to see.
Eliminating the limits on bank merger tax shelters also silently added up to an estimated $140 billion dollars to the $700 billion taxpayer bailout bill.
A time line is helpful in looking at this. On September 29, Citigroup announced a plan to take over the struggling bank Wachovia. On September 30 the Treasury Department launched their 5 sentence strike on Section 382. On October 3, Wells Fargo announced it was buying Wachovia instead for $15.1 billion. With the elimination of Section 382, buying Wachovia became much more attractive for Wells Fargo, which gained an additional $25 billion in tax reductions through the merger. Thus this Treasury action has come to be known as "the Wells Fargo Ruling." Bank people (who focus on mergers and acquisitions) knew right away about this change, but Congress did not. Reports stated that Congress was furious, because they heard second hand and were reasonably concerned about whether this was legal at all.
From the WaPo article, in an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Eric 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.
Lawmakers, including Max Baucus, chair of the Senate Finance Committee included, were "nervous" about discussing their concerns publicly, however. According to the WaPo article, Baucus' staff asked that the entire conference call be kept secret. Speaking on condition of anonymity, one congressional aide said:
We're all nervous about saying that this was illegal because of our fears about the marketplace. To the extent we want to try to publicly stop this, we're going to be gumming up some important deals.
Basically, they are afraid that calling this illegal could tank some of the bank merger deals and "crash the economy." "None of us wants to be blamed for ruining these mergers and creating a new Great Depression."
Others, however, expressed concern, but no so far as to say it was illegal. On October 24, Sen. Charles Schumer released a letter to the Treasury Dept. He stated, in part:
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. . . . I also fear that the Notice could have the unintended consequence of motivating more financial firms wanting future tax deductions to shelter their earnings to buy competitors, leading to more consolidation in the financial industry than would be necessary to restore stability in the financial sector.
From then to now, two more bank mergers have taken place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said.
These faint objections are comparable to the tiny voices and foot shuffling that was later described as opposition to the AUMF. Lee A. Sheppard, tax attorney and contributing editor at the trade publication Tax Analysts stated:
It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system. We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants? |
