Wednesday, March 24, 2010

WSJ: "Stimulus" Plan Creates $33B Tax Windfall for Corporations Across Cramerica

It looks like the lobbyists in myriad other industries sat back in awe at what the home building lobby pulled off [Mar 18, 2010: Large Public Homebuilders Benefit from Tax Aid - Lobbyists Win Again] and as part of an extension of jobless benefits (yes you heard me) were able to make sure they got theirs too!  After all "the social safety net" or "stimulus" is all about handing back corporations the taxes they paid in the good times.  I am not really sure why we bother to have a tax code anymore for the big fish... the taxes they pay during good (bubble) times are simply being handed back to them during downtimes under the guise of "stimulus" ... better known as "you want us to continue to contribute to your political coffers don't you?"  (insert dogma here about onerous 35% corporate tax rate in Cramerica here)

Can you imagine, dear reader, how nice this arrangement would be for all of us?  During the boom years we pay our 1040s as dutiful citizens but then in 2008, 2009 as we struggle with the economy, we have our lobbyists work the midnight oil to slip into "stimulus" programs line items stating that we should get back the majority of the taxes we paid in previous years since times are tough and the last thing Congress wants to see, is our suffering.   Gosh, if only we lived the good life of a corporate-citizen*

*as deemed by the Supreme Court

Since our legislators now vote on bills before they have time to read it - or even have their staffers read it - we can expect many such goodies to pop up after the fact, most never reported in a mainstream media publication since the pork / handouts / bribery is too small to report.  (can't wait to see all the goodies in the healthcare bill we shall discover circa 2012)  After all, we have become numb to large numbers - if the bribery generosity is not over $100 billion we don't even blink anymore.  $12 billion?  Whose gonna miss it!  Thankfully we don't have a yawning chasm of debt in this country ...

Of course the recepients of such largesse will claim its not "just them" but 250 corporations that benefit - but the lion's share is going to just a few of the head honchos.  ($5.1B of the $12B identified thus far goes to just 3 companies)  At the head of the hand out line... oligarch JPMorgan which claims that the taxpayer backstops are not enough, nor the 0% Fed funds rate they enjoy, nor the implicit backstop of the US taxpayer, nor is the FDIC "loss sharing" agreement they enjoy on each bank they take over (i.e. where the FDIC takes the majority of the losses on the liabilities when bank A takes over failing bank B, letting the bank who does the takeover receive a massive cash cow - assets up the wazoo with most of the losses born by a federal agency).  They want their cake, and the tax write off on the cake as well. 

If you are a regular FMMF reader - I already explained "the game" in last week's piece but WSJ readers now get to see it splashed on the front page.  Please note the figures below are only for the FIRST $12 Billion... there is at least $21 Billion more to come this year alone.

Via WSJ:
  • J.P. Morgan Chase & Co. is nearing a deal that would allow it to benefit from a tax refund of as much as $1.4 billion, becoming the latest company to tap a little-noticed plank in an economic stimulus bill. (a stimulus for Jaime Dimon yes - for America? Not so much)  That law let companies apply losses from 2008 or '09 against taxes paid in the previous five years, instead of the previous two years. Failed Seattle thrift Washington Mutual is eligible for about $2.6 billion in tax refunds, thanks to big losses in 2008. Now J.P. Morgan, which took over WaMu's banking operations in September 2008, is in discussions with the Federal Deposit Insurance Corp. and bondholders about the refund.  According to people familiar with the talks, an agreement under discussion would let J.P. Morgan claim more than half of the total, to be held in an FDIC receivership as part of a larger settlement with bondholders.
  • J.P. Morgan wants to protect itself against exposure to mortgages that WaMu serviced, people familiar with the matter said. The refund could help J.P. Morgan avoid paying any damages out of its own pocket. (i.e. heads JP Morgan wins, tails JP Morgan wins - thank you for handing us Washington Mutual, and please take all the risk out of our hands - we thank you for your service to our oligarchy, American government.  Please find the deposit to your politicial campaign coffers at the agreed upon date & have a nice day.)
  • Many other companies have benefited from the 2009 tax-refund law already. According to an analysis of securities filings by The Wall Street Journal, more than 250 companies have so far said they expect to get about $12 billion in federal tax refunds under the law. (we're not done yet - the chart above is only for the first batch!)  That remains a partial list. The Joint Committee on Taxation, a congressional committee, estimated the provision would cost $33 billion in its first year. (there is more than 1 year to this?)
  • Some critics have found the corporate-tax-refund technique wanting as a stimulus or job-creation move. (no worries, anyone you need tax money handed to you just start throwing lines like "we'll move overseas if you don't give us this incentive"  There are 3-4 bullet points of dogma you can use... "job creation" is another great one)  Prior to Congress's passage of the $787 billion stimulus law in early 2009, the Congressional Budget Office looked at six possible stimulus approaches and ranked this one least effective, saying each corporate tax dollar refunded would generate at most 40 cents of boost to gross domestic product.
  • The corporate-tax-refund approach wasn't included in the big stimulus bill early in the year, but was part of legislation in November that extended jobless benefits.  (another reason Congressional bills should be split into pieces so that they are not filled with backdoor handouts that have nothing to do with the main purpose of the bill - but that would not allow for easily hidden malfeasance)
  • Home builders, hit with big losses in the housing slump, are getting the biggest lift from the law. Sixteen builders estimate they're due refunds totaling over $2.6 billion. The tax break propelled builders Lennar Corp., Hovnanian Enterprises Inc. and KB Home to profits in recent quarters.
  • Others that have said they're receiving tax refunds include US Airways Group Inc. and Alaska Air Group Inc.; retailers Liz Claiborne Inc., Borders Group Inc. and Zale Corp.; and financial-services firms HSBC Holdings PLC and Legg Mason Inc.
  • The law doesn't say how recipients must use the refunds. Some plan to pay down debt or stockpile cash. Most aren't saying how they'll use the money.
  • Some companies intentionally took steeper losses last year to qualify for bigger tax refunds. KB Home sold land at a loss in 2009, the Los Angeles home builder told investors in January.  "We were able to dispose of lots, generate cash, take advantage of [the tax break], improve our balance sheet," KB Chief Executive Jeffrey Mezgersaid. "It was a very nice move for us." Booking the $192 million tax benefit propelled KB Home to a $100 million profit in its fiscal fourth quarter ended Nov. 30. (KB Homes did a nice job but the CFO at Pulte Homes deserves an A++++ for whatever he did to get nearly $1 billion in taxpayer money handed back to him/her - I hope he/she received huge bonuses for that level of skill!)
Look - you can run your company into the ground and even receive the handout - it's good to be a corporate citizen of Cramerica.
  • Circuit City Stores Inc., which sought bankruptcy protection in 2008, recently said it expects an $86 million refund. The retailer closed all of its stores last year.
Now that's "stimulus" baby!


If you don't want to read the nitty gritty this is really the only takeaway you need to pass along to your Facebook friends:
  • Douglas Shackelford, a tax professor at the University of North Carolina at Chapel Hill, said using federal tax receipts to shore up corporate balance sheets amounts to "public borrowing to pay off private debt"
Boo Yah.  Corporatamerica rules.

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