While the eyes of Congress and the public were focused on the $700 billion Wall Street bailout in September, the Bush administration slipped through a tax break for banks that could cost the federal treasury $140 billion - and cost the state of Oregon a bundle too.
As succinctly explained by Citizens for Tax Justice: "Generally, corporations that report tax losses in a given year are allowed to apply these losses against profits in future years. But this ability to 'carry over' losses from one year to reduce taxes in future years has limits. For example, when one company buys another company that has tax losses, the law prevents the acquiring company from using the purchased company's tax losses. There's a very sensible reason for this rule: to ensure that companies don't purchase other companies simply as a tax dodge.
"But a little-noticed September IRS administrative ruling creates a specific, temporary exemption from this rule for banks acquiring other banks whose tax losses are attributable to bad loans. The rule is apparently retroactive."
The biggest winner under the rule change will be Wells Fargo, "which by one estimate will see a federal tax cut of $19 billion from its purchase of Wachovia."
Why will this hurt Oregon and other states where Wells Fargo does business?
"Because states with corporate income taxes almost universally base their corporate taxes on federal rules, federal tax cuts for corporations generally result in state tax cuts as well," Citizens for Tax Justice explains. "When affected states have rules making it difficult to enact tax increases ... state governments find themselves practically unable to avoid costly corporate tax cuts they never wanted."
How much Oregon stands to lose hasn't been worked out yet.
Tip of the hat to Chuck Sheketoff on the BlueOregon blog for pointing this angle out.
