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Amid all the clamor over the government shutdown, our nation's leaders faced another question of budget priorities last week: Is $4 billion in taxpayer money better spent subsidizing JPMorgan's alleged criminal activity or funding the federal agency charged with defending consumers from dangerous financial products?
Last week, news broke that the biggest Wall Street legal settlement in history may soon be announced. JPMorgan, the nation's largest bank, could pay as much as $11 billion to federal authorities to resolve investigations into its peddling of crisis-era mortgage-backed securities. Unless regulators act to prevent it though, JPMorgan could reap a massive tax deduction from the settlement that would cost the U.S. Treasury $3.85 billion.
Meanwhile, shortly after the JPMorgan settlement was announced, House leaders proposed new budget saving reforms that included defunding the Consumer Financial Protection Bureau - an agency that was created in 2011 to protect consumers from the dangerous and deceptive products that contributed to the worst financial crisis in recent history.
The $3.85 billion that JPMorgan could collect in tax subsidies from its settlement with authorities could fully fund the CFPB for seven years. In fact, the money from JP Morgan's settlement loophole could pay for 17 years' worth of the section of the CFPB responsible for protecting consumers from corporate harms, like those that JPMorgan is accused of committing.
It's a little-known fact that corporations generally manage to get tax deductions for their settlement payments. Fines and penalties are not tax deductible by law. However, when corporate lawyers negotiate settlement agreements to resolve legal charges, it is standard business practice for a corporation to deduct those payments from its taxes unless agencies specifically forbid it in the settlement agreement.
Congress and federal regulators face a choice that is made clear by JPMorgan's newest run-in with the law: they can close the tax loophole that allows corporations to deduct their settlement payments from their taxes, or they can continue allowing corporations like JPMorgan to walk away from settlement negotiations with billions in tax windfalls in their pockets.
While budget debates echo through the halls of Congress, our elected officials should ask themselves why the nation is able to quietly spend billions of dollars in corporate tax handouts year after year through the settlement loophole, but struggles to agree to pay for the agency responsible for preventing the crimes and negligence that lead to those settlements in the first place.
You can read more about the settlement loophole in U.S. PIRG's Report, "Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs."
Link to the published article: http://www.huffingtonpost.com/francisco-enriquez/the-4-billion-question-...
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