Stimulus plan repeals big tax break for banks

[Thrill]

WASHINGTON – House Democrats' version of the $825 billion recession rescue package would end billions of dollars in tax breaks the Bush administration quietly gave to banks last fall.

Already almost exclusive beneficiaries of a $700 billion Wall Street bailout, banks are largely left out of the House stimulus package that President-elect Barack Obama wants passed quickly through Congress. Those getting financial bailout money wouldn't even be eligible for one of the main business tax breaks aimed at priming the economic pump.

Homebuilders, manufacturers, retailers and low-income families share the bulk of the $275 billion in proposed new tax cuts.

House leaders moved this week to repeal the tax break for banks even as the Senate voted to help many of those same institutions by releasing the second $350 billion of the widely unpopular Wall Street bailout. Many lawmakers are unhappy with the results after the Bush administration spent the first $350 billion, making them wary of helping banks in the stimulus package.

To address the financial industry meltdown, the Treasury Department last fall issued a new tax rule to make it more attractive for healthy banks to buy troubled ones hit hard by the mortgage crisis. It allowed healthy banks to avoid billions of dollars in taxes by offsetting their profits with the losses of the banks they acquire.

Before, the merged bank could write off only a limited amount of the losses. Removing much of the restrictions enabled the acquiring banks to make huge reductions in their tax liabilities.

In some cases, the tax breaks exceeded the cost of acquiring the troubled banks. Wells Fargo & Co., for example, made a bid to acquire Wachovia Corp., just days after the change in tax rules was issued Sept. 30. Wells Fargo paid $14.8 billion in a stock deal to buy Wachovia, but stands to reap about $20 billion in additional tax savings from the transaction, according to analyses by private tax experts.

Pittsburgh-based PNC Financial Services Group Inc. reduced its taxes by about $5.1 billion through its takeover of National City Corp., according to the analyses.

The Treasury Department did not release an estimate of how much the tax break would cost the government. However, a widely circulated commentary by the law firm of Jones Day estimated that banks could eventually reap tax savings of up to $140 billion by acquiring banks with large losses related to the housing market downturn.

Repealing the tax break would negate those savings in future bank mergers. It would not, however, affect mergers already under way, according to a summary of the stimulus package released by the tax-writing House Ways and Means Committee.

http://news.yahoo.com/s/ap/20090116/ap_on_go_co/stimulus_taxes;_ylt=Ao6ZSOSFXGB59OzdLIfEUWOyFz4D

[Frustratedlady]

1. So they moved their money offshore AND got tax breaks, too?

My blood pressure is going to require help from the medical industry if I don't quit reading this stuff. I still haven't settled down from reading about their offshore tricks.

After this past year, I'm to the point of hating mega banks. I'll stick with my small town bank. At least I know where they live if they cheat me.