Bank of America's Awesome Countrywide Tax Break

originally appeared in The Economist

Cruising on CNNMoney.com, I came across Allan Sloan's "BoA's Awesome Countrywide Tax Break" (Fortune, 1/14/08).  "Guess who's helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States. 

That's because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide's losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years...."

It seems high time we pay more attention to these sorts of high-dollar bailouts, whether its preferential tax breaks for big corporations or mortgage rescues for sub-prime paid for on the backs of taxpayers and investors.  Just last week, Hope Street Group released its Corporate Tax paper "Ending Corporate Favoritism" (1/9/08) recommending that huge corporate tax breaks be eliminated in order to level the playing field for all American businesses, big or small.  Stay tuned for our latest proposal to address the sub-prime mortgage crisis without putting the tab on investors or taxpayers. 

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January 15, 2008 - 10:03pm — Dmitri Mehlhorn

The real bailout

The notion of $100m per year in foregone taxes seems shocking.  But it shouldn't be.  This is an extreme case, but this happens all the time.  We live in a world where the tax code is so complex that loopholes and shelters and "tax subsidies" can be easily buried in ways that the public and the press can't find.  The Hope Street Group paper on this subject, as well as those of other groups (such as the CATO Institute on the right and the New Republic on the left), detail significant large gaps in the corporate tax code that could be eliminated to make the whole tax code more just, more growth-oriented, and less expensive. 

January 15, 2008 - 6:53pm — hhilsman

Corporate Welfare

Good post, Lonny. This shows how ending corporate welfare and leveling the playing field is a tough challenge. We're obviously between a rock and a hard place with struggling financial institutions and a faltering economy. Is "too big to fail" still the operative mode? Or can we come up with a better paradigm that levels the playing field but still grows the economy?