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Although we seem to generally be on the road to economic recovery — my blood still boils when I think about the role big banks played in the mortgage crisis that drove our economy to the brink of collapse. It boils a little more when I remember the record profits they enjoyed afterwards, and the multibillion dollar bonuses they doled out after benefiting from a taxpayer bailout.
Unfortunately, I’m feeling about ready to boil over after hearing about the most recent slap in the face by the big banks.
You may have heard that Bank of America and CitiGroup recently negotiated a settlement in a multibillion dollar lawsuit to settle charges that it mismanaged mortgages and knowingly violated regulatory practices, resulting in the wrongful foreclosure on hundreds of thousands of American families.
Bank of America agreed to an $11.6 billion negotiated settlement to Fannie Mae, settling charges that its Countrywide Financial subsidiary sold the agency mortgages obtained with improper underwriting and other practices. Ten banks, including Bank of America, separately agreed to pay $8.5 billion in direct and other benefits to homeowners for knowingly violating regulatory procedures and wrongfully foreclosing on hundreds of thousands of homeowners who should have been allowed to stay in their homes.
Many have argued that the settlements levied on big banks like BOA and Citigroup were too lenient — but what really turns my stomach is that these bank giants can, and most likely will, claim these settlements as a deduction on their taxes. And when that happens, taxpayers like you and me and the homeowners that BofA wrongfully kicked out of their homes, will be left to pick up the tab.
Let that sink in for a second.
That means big banks that essentially destroyed the lives of hundreds of thousands of homeowners and sent the United States into an economic spiral by using illegal practices to bolster their profits can write-off their settlement in resulting court cases as a cost of doing business.
That’s just wrong, but unfortunately not unusual.
Not too long ago, you might remember that BP plead guilty to felony manslaughter in the Gulf oil spill and agreed to pay $4.5 billion in the settlement with the Department of Justice. Iowa PIRG worked alongside our national federation and flooded the DOJ’s inbox. We convinced Attorney General Eric Holder that BP should pay for its own mistakes, and he made sure the settlement was non-tax-deductible.
That was great news, and a good example of the public pushing decision-makers to do the right thing — and winning.
But now, Bank of America and other big banks are trying to play the system and set themselves up to essentially receive a $7 billion tax subsidy.
Just because these banks treat law-breaking as an acceptable risk and a “normal” part of doing business doesn’t make it right and the public certainly shouldn’t have to pay for it. Let me re-phrase, after already providing the initial tax bailout, taxpayers shouldn’t have to pay for the wrongdoings of these big banks again.
The question boils downs to whether these banks will be allowed to use the settlement costs to reduce their taxable income or whether the money will come directly out of their profits.
It should be the law of the land that corporate wrongdoing cannot be tax-deductible. Sen. Chuck Grassley, R-Iowa, has sponsored a bill, the Government Settlement Transparency Act, multiple times now in an attempt to address this very issue.
We need to rally an enormous amount of support behind good policy like that, and we need Grassley to champion his bill again this year. We also need to call on the Department of Justice to expressly forbid big banks from being able to deduct fines and penalties on their taxes, so they are forced to pay for their own mistakes.
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