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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsRevolving Door Sham: JPMorgan CFO Admits $7 Billion of DOJ Settlement is Tax-Deductible
http://www.truth-out.org/buzzflash/commentary/item/18327-revolving-door-sham-jp-morgan-cfo-admits-7-billion-of-doj-settlement-is-tax-deductibleIn reality, it is, according to The New York Times only "half the banks annual profit." As BuzzFlash at Truthout has pointed out in the past, that still means roughly $6.5 billion dollars in profit for the behemoth financial institution, no apparent cut in the oligarchical compensation of the likes of JPMorgan's chief executive, Jamie Dimon, and no major changes in the salaries or composition of Dimon's executive team.
Furthermore, the NYT reports that "Marianne Lake, JPMorgans chief financial officer, emphasized that $7 billion of the settlement was tax-deductible." In addition, as BuzzFlash reported in an earlier commentary, JPMorgan may -- if you can believe this -- may receive several billions of dollars in FDIC coverage that would offset as much as a third of the $13 billion fine.
But then we get down to the basic fact that the DOJ still cannot answer. How can a bank-too-bit-to-fail commit $13 billion worth of fraud and yet no one committed a crime? Yes, the agreement allows for a Sacramento US prosecutor to pursue some relatively minor criminal charges in California, but that looks like about it.
truedelphi
(32,324 posts)or what Eric Holder referred to as "Too Big To Jail."
marmar
(77,106 posts)Jim Lane
(11,175 posts)A corporation should be taxed on its net income. Money that it forks over to pay a fine isn't part of its net income, any more than is money that UPS forks over to compensate someone who was hit by a negligently driven delivery truck.
The final point in the OP, about the failure to bring criminal charges, is spot on, though.
Scuba
(53,475 posts)Ichingcarpenter
(36,988 posts)Take BP
BP managed to write off the cost of its $32 billion cleanup and collect a $10 billion federal tax windfall for the spill.
Yes, you read that correctly. BP took a $10 billion tax break for the Deepwater Horizon oil spill.
Deepwater Horizon wasnt the first oil spill to be written off as a tax deduction, and it wont be the last unless the rules change. When the Exxon Valdez tanker ran aground in 1989 and spilled 11 million gallons of oil into Alaskas Prince William Sound, Exxon was fined $5 billion.
Less well-publicized was that Exxon argued the decision in court for the next 20 years until 2005 when the Supreme Court decreased the fine to $500 million. Exxon then took a $200 tax deduction. When all was said and done, Exxon ended up paying about $300 million for the spill.
If these oil companies had simply been fined for their spills they would not have been able to take these massive tax windfalls. Similarly, if normal citizens pay parking tickets or late fees at the library, we cant deduct them from our taxes, even if we negotiate over the fine.
But when corporations negotiate violations of the law, they can take advantage of a special loophole. While federal law forbids companies from deducting public fines and penalties from their taxes, if their lawyers negotiate payments through a legal settlement, then they can typically write the payments off as a tax deduction unless the agency specifically forbids it.
This is a broader problem that also includes companies deducting settlements for misdeeds such as foreclosure and Medicare scams, dangerous pharmaceuticals, and consumer swindles.
When this happens, the public is triply harmed. First is the direct harm of the oil spill or other corporate misdeed. Second, government revenues are reduced by up to 35 percent of the settlement amount at the federal level, and additional amounts at the state level. For each dollar a company like BP writes off, the public must pick up the tab through cuts to public programs, additional taxes for ordinary citizens, or more government debt.
Thirdly, future deterrence of corporate wrongdoing is weakened, as perpetrators understand that the true sticker price for violating the public trust will be far less in the headlines.
Scuba
(53,475 posts)Jim Lane
(11,175 posts)You write, "Similarly, if normal citizens pay parking tickets or late fees at the library, we cant deduct them from our taxes, even if we negotiate over the fine."
One obvious difference is that these aren't business expenses in the sense of being related to income. In the corporate examples, when the company does something shady and thereby increases its profit, Uncle Sam declares himself in on the deal, and takes 35% of the extra revenue. It's hypocritical for the IRS to refuse to recognize the expenses that were incurred to make that extra profit. An individual's parking ticket or library fine, by contrast, isn't normally related to the income that the IRS is taxing.
I figured I'd be in the minority on DU on this one, but I believe in fairness in taxation -- even fairness to big corporations. The corporate income tax should be assessed against net income, after deducting the expenses that were involved in generating that income.
You're correct that it weakens the deterrent, but that factor should be taken into account by the government in the setting of the amount of the settlement in the first place. In general, I believe there's a tendency of government agencies to go for a "body count" by being too ready to agree to deals that generate favorable headlines, even if adopting a tougher negotiating posture with a corporate malefactor would have been more in the public interest.
Ichingcarpenter
(36,988 posts)that day.
Same fucking thing as dumping oil in the gulf....
Jim Lane
(11,175 posts)A deduction isn't the same as a credit. As long as the nominal corporate tax rate is less than 100%, paying a fine and deducting it will still leave less money for stockholders.
The way to make it a proper deterrent is to ensure that the initial amount of the fine is large enough. When an amoral corporation is considering doing something shady to increase its profit, it will weigh the prospective profit against the risk of being caught and fined. The larger the anticipated fine, the less likely it is that the corporation will take the action.
An even better deterrent, of course, would be individual criminal liability for corporate officers who cause the company to undertake the misconduct.