Obama's IRS to grant Citi 38 billion dollar tax exemption

[piasabird]

Maybe O'Bammah is just a thief like all his friends.

 

[Rezag3000]

I don't think any of us understand the complexity of the situation; I don't think this relaxation is such a blatant sign of corruption as you guys think. I'm sure there are some technicalities that have led to the rule being relaxed, in addition to a pinch of corruption

 

[Zebo]

Heh. If giving Citi a tax break of a couple of billion means they can repay 20 billion in tarp funds, I see that as a good thing for the taxpayers. Well, unless you think that risking taxpayers' money any longer than necessary with Citi is a good thing...

Or, don't let the unwillingness to take a small loss turn into a big loss...

Heh heh good point now that you mention it. Somethins' better than nothin'

 

[StageLeft]

I think it's been made pretty clear that Repubs and conservatives have been thinking something is majorly wrong with the Repub party.

Fern

But they keep voting for it like good little drones and the party itself is quite consistent, so I think their actions do not speak as loud as their supposed words.

Instead of celebrating the end of that public investment in Citi and the seemingly early return of public monies (with interest, I assume), folks here wish to create a mountain of hype out of what is most likely an issue of fairness.

Gov just declared it's postponing its sale of Citi stock. And in any case the stock has been hammered lately including afterhours as Citi announced what it's letting those shares go for for its $20B to repay TARP so it can pretend it was able to pay it back.

What I find really interesting, however, is that the constraints on executive compensation that many here have railed against seem to now be the impetus behind our fine financial institutions deciding it is time to pay back the taxpayers (with interest). I'd say that is a good thing.

Please explain how. Citi has just diluted their stock to below what the government paid for it. And it did this to repay TARP so that in part it can start rewarding its execs with more money. It sure seems like they've earned it. So now the government is left with equity worth less than it was before plus this lost tax revenue.

I don't think this relaxation is such a blatant sign of corruption as you guys think. I'm sure there are some technicalities that have led to the rule being relaxed, in addition to a pinch of corruption

Maybe, but with recent top execs from Citi ubiquitous in Obama's administration, which side are you really going to take?

 

[CycloWizard]

I generally vote Libertarian, but let's be honest, that's just avoiding having to settle for a lesser evil. Voting third party isn't actually an improvement, it's just dooming to defeat the party to which you are closest.

Besides, look at your third parties:
Greens - the Democrat Party isn't Marxist enough, government should control everything and each year seize and redistribute all the money.
Tea Party et al - the Republicans are too Marxist, government should shut down and not seize any money.
Libertarian - make drugs legal, dude, then eliminate everything not mentioned in the Constitution and cut taxes 50% so we can afford to buy drugs!

Any of that look attractive?

That signature line is still crazy awesome . . .

None of them are attractive, which is why I didn't vote for anyone. I would rather cut myself than vote for anyone that was on the ballot in 2008. I voted on non-presidential issues, but I couldn't support any of the crap that was thrown at us for president.

 

[Robor]

Not just over this, but it's my opinion now that the Obama administration is corrupt regarding the finance industry.

There was an interview today of Matt Taibbi on this on the Thom Hartmann show (see sig), and Thom asked him why Obama has chosed the road of Clinton and not the road of FDR.

Taibbi said it's a mystery but the main theories are naivete by Obama, and his recognizing the need for money for re-election and how the needed money comes from Wall Street.

He said he thinks it's a combination of the two. That seems reasonable to me. I'm not that familiar with the details on campaign funding to know how much Obama 'has to' make these compromises to get re-elected, but clear the pressure is stronger than it should be for the good of our contry. I might still think Obama has a lot of good intentions, but I can't excuse the choices he's making.

None of this is to compare him to the Bush or other Republican would-be administrations. I'm not saying he's as bad or wose than they would be. But I am noting my conclusion of his wrongs.

And one way it is worse, is that we liberals expect a sellot from Bush - but it's very destructive when someone purportedly on 'our side' does something like this, it cripples any further debate.

Liberals are more and more fretting about what to do, between 'fixing' the Democratic party they're so disappointed in, and going outside it.

Nothing new there to what I've long been saying that there is a battle in the Democratic party between the progressive wing and the corporatist wing. Shamefully Obama has chosen the latter.

I understand he has to govern in the current system and the less important issue is Obama compared to the overall excessive power of the corporatocracy. That's what we need to fix.

And the only sizable group out to do that that I see is the progressive wing of Democrats.

Great post, Craig! :thumbsup: I voted for Obama and I support many of his decisions but who he has chosen to handle our finances has me confused and disappointed. :\

 

[Modelworks]

Maybe the reason these banks announce they would pay back the tarp funds is all because they knew they were getting the tax breaks.

 

[StageLeft]

BTW thanks to Citi's "TARP repayment" today the US government now owns not 34% but more like 26% of Citi. So not only did Citi weaken its stock but by throwing more of it out there every stock holder now owns less than before.

 

[Fern]

For starters, the claim of a 38 billion dollar tax break is highly misleading as phrased. (At least with regards to actually saving Citi Bank that kind of money, which is clearly the impression conveyed by some of these articles.)

Well, it's not misleading at all. They're using the normal terminology for such a benefit, had they said a "38 billion dollar tax credit" I'd have to agree with you.

Now, I'd say it's not clear yet (to me anyway) how much a tax reduction this suspect ruling will give Citi (and other TARP banks).

Our corporate tax rate is 35%. (There are brackets, and the rate goes up to 38% in order to eliminate the lower brackets so that at about $18M we're looking at a flat 35% rate on all profit.) $38B x 35% = $13.3B for this one bank. But that would be maximum benefit, however I think it lower than that because I doubt all the $38B would hve been disallowed (if not for this ruling). But this calculation is a complex one (it's in Internal revenue Section 382). Until I see a tax CPA's calculation, or if it's the IRS ruling (which I haven't yet found) I'll take any estimate from a journalist or economist with a great big bucket of salt.

We're talking about several billion dollars in actual potential savings, but when you look how this actually works with the US Government actually owning Citibank shares right now, this probably is actually a break even move for taxpayers overall if not actually saving taxpayer money.

http://marketplace.publicradio.org/display/web/2009/12/16/pm-citi-tax/

Basically if the stock price of Citigroup drops enough as a result of this ruling, it actually could be a greater cost to the government than the potential ruling since the US government is going to be selling it Citigroup shares soon.

I disagree with the bolded sentence, and I think we're hearing some BS from the gov etc.

Explain the difference between these two senarios (other than structure, isn't the substance the same?)

1. Bank pays $10 billion in tax. Government gives bank $10 billion in more aid so it can pay off the TARP loan. That $10 B is taxpayer money, it'll increase the deficit that we taxpayer must eventually pay off. The government has given $10B of taxpayer money so bank can payoff $10B in TARP. Net effect to us taxpayers is ZERO ($10B in TARP received from bank less $10B in tax money given to bank = zero)

2. Government issues ruling that bank doesn't owe $10B in taxes. Bank just keeps money and uses it to pay back TARP funds. Same net effect as #1 above.

Numbers 1 and 2 acheive the exact same thing. However, in number 1 it's obvious we're giving the bank $10B to pay us back the $10B they owe us, meaning they haven't paid back a damn thing. This would be politically unpopular and seen for what it is, another 'bailout' to banks, and no 'real' payback of TARP funds.

We're getting snookered people.

BTW: It's questionable that this has an effect on the banks stock. At that level, stock is valued using a forumla called EBITDA. EBITDA means "earnings before interest, taxes, depreciation and amortization". Notice how taxes are NOT included in the stock valuation?

But let's forget about that for a moment. Let's forget about #1 and #2 above. If the US gov 'gives' $10B to the bank making it's stock value go up, we're netting zero (at best, likely we're losing). If the $10B translates into $10B more value in the gov's stock we're at zero ($10B 'extra' received in sale of preferred stock less $10B given away = zero).

However, it's likely we're coming not even, but at a loss. If the $10B translated into an increase of $10 for the bank's worth we got a problem. You see the gov doesn't own 100% of the bank. If the gov owned 25% (it's actually less because IIRC they own about 25% of preferred stock only) then the gov only get's a benefit of 25% x $10B = $2.5B. So, we're getting snookered even worse here. We've not been repaid and we've given the bank another $7.5B in taxpayer money. Net loss to us = $7.5B

Cliffs: We're getting screwed by some fancy accounting.

Fern