There are four tax breaks most Big Financial Corps have received. Of these four, there are two that clearly dominate in magnitude….Tax Exempt Investments and Tax Credits, the latter predominantly earned on low income housing.
The US Government and the Fed have created an economic environment in which the cost of financing by Big Financial Corps is incredibly low. And many of these Big Financial Corps are able to borrow from the US Government at an extremely low interest rate.
And particularly given that even in this really low cost of financing environment, Big Financial Corps have still been so reluctant to make loans, it makes no sense to me that the US Congress permits these Big Financial Corps to make tax-exempt investments.
I call what the Big Financial Corps are doing here “piling on”.
And given how horrible the US housing crisis has been on homeowners, just how have all of these housing tax credits granted to Big Financial Corps worked out? Clearly, the only beneficiaries have been the Big Financial Corps granted these huge housing tax credits.
Anyway, below here are the four tax breaks disclosed in just the year of 2010 that each of the Big Financial Corps have taken advantage of. Several of theses companies below have their tax breaks from Dividend Income included with their Tax Exempt Investments. And the below tax breaks are just the ones that were disclosed.....many are buried in their "Other Category" in their income tax rate reconciliation footnote in their 2010 10K.
................................2010 US Federal Income Tax Benefits Received From.....
| Bank | |||||
| Tax | Owned | Total | |||
| Exempt | Dividend | Tax | Life | Tax | |
| Investments | Income | Credits | Insurance | Benefits | |
| mils of $s | mils of $s | mils of $s | mils of $s | mils of $s | |
| Big Financial Corps | |||||
| Bank of America | 981 | 732 | 1,713 | ||
| JPMorgan Chase | 597 | 920 | 1,517 | ||
| Wells Fargo | 283 | 291 | 577 | 223 | 1,374 |
| Fannie Mae | 183 | 888 | 1,071 | ||
| Citigroup | 883 | 883 | |||
| Freddie Mac | 213 | 585 | 798 | ||
| US Bancorp | 214 | 462 | 676 | ||
| PNC Financial Services | 53 | 57 | 175 | 73 | 358 |
| Morgan Stanley | 105 | 223 | 328 | ||
| GE Capital | 291 | 291 | |||
| BB&T | 125 | 105 | 230 | ||
| Goldman Sachs | 129 | 90 | 219 | ||
| Key Corp | 17 | 117 | 48 | 182 | |
| SunTrust Banks | 74 | 13 | 88 | 175 | |
| Fifth Third Bancorp | 34 | 133 | 167 | ||
| Regions Financial | 23 | 102 | 33 | 158 | |
| Capital One Financial | 158 | 158 | |||
| Bank of NY Mellon | 85 | 66 | 151 | ||
| UnionBancal | 11 | 108 | 119 | ||
| Ameriprise Financial | 13 | 69 | 33 | 115 | |
| American Express | 113 | 113 | |||
| State Street Corp | 75 | 27 | 102 | ||
| HSBC USA | 12 | 86 | 98 | ||
| Santander Holdings US | 26 | 40 | 19 | 85 | |
| Comerica | 49 | 15 | 64 | ||
| M&T Bank | 32 | 30 | 62 | ||
| Huntington Bancshares | 7 | 23 | 21 | 51 | |
| Marshall & Ilsley | 14 | 15 | 16 | 45 | |
| First Horizon National | 24 | 10 | 34 | ||
| Zions Bancorp | 22 | 9 | 31 | ||
| NY Community Banc | 10 | 6 | 16 | ||
| BOK Financial | 5 | 6 | 4 | 15 | |
| Commerce Bancshares | 13 | 13 | |||
| Northern Trust | 11 | 11 | |||
| Total all 34 Big Financial | 4,363 | 430 | 6,168 | 462 | 11,423 |
| Big Insurance | |||||
| AIG | 587 | 108 | 695 | ||
| Berkshire Hathaway | 27 | 477 | 504 | ||
| Travelers | 476 | 476 | |||
| MetLife | 242 | 82 | 324 | ||
| Hartford Financial Services | 152 | 154 | 306 | ||
| Prudential Financial | 214 | 58 | 272 | ||
| Chubb | 241 | 241 | |||
| Allstate | 176 | 176 | |||
| Lincoln National | 105 | 42 | 147 | ||
| Loews | 85 | 85 | |||
| CNA Financial | 84 | 84 | |||
| UnitedHealth Group | 65 | 65 | |||
| WR Berkley | 63 | 63 | |||
| Cincinnati Financial | 36 | 19 | 55 | ||
| WellPoint | 53 | 53 | |||
| Progressive Corp | 19 | 30 | 49 | ||
| Cigna | 31 | 3 | 34 | ||
| Genworth Financial | 32 | 32 | |||
| Erie | 18 | 14 | 32 | ||
| HCC Insurance | 27 | 27 | |||
| Humana | 24 | 24 | |||
| Ace Ltd | 20 | 20 | |||
| Torchmark | 3 | 13 | 16 | ||
| American Financial Group | 16 | 16 | |||
| Assurant | 8 | 5 | 13 | ||
| Principal Financial | 3 | 10 | 13 | ||
| Total all 26 Big Insurance | 2,807 | 820 | 195 | 0 | 3,822 |
| Total all 60 | 7,170 | 1,250 | 6,363 | 462 | 15,245 |
It should be pointed out that the tax break on the Tax Advantaged Investments shown above is just the 35% tax rate on tax exempt income, as is disclosed in these companies’ income tax footnotes. The real tax cost here to the US government would be much higher than the amounts shown above, since the interest yield on taxable investments is substantially higher than that on tax exempt investments.
Yeah, that’s right, $15.2 bil of US federal income tax breaks in only one year.
My proposal here is to eliminate all four of these tax breaks given to Big Financial Corps.
Let me project the positive CBO scoring of US Taxes Raised on this, just for the above Big Financial Corps.
I’ll start with the $15.2 bil of 2010 total tax breaks. And for the Tax Exempt Investment tax break, I’ll gross it up to convert it to the tax receipts on taxable investments. And I’ll assume the total tax breaks grow by 5% per year.
For the ten years 2013 to 2022, the positive CBO scoring is $277 bil. For the second ten years 2023 to 2032, the positive CBO scoring is another nearly $450 bil.
The actual CBO scoring numbers will be even much higher due to several factors.
First, my numbers are just for the Big Financial Corps that I found, and there are many others.
Second, these are only the tax breaks these companies disclosed separately and there are many others included in the Other Category in their income tax footnotes. Yeah, that's right, many of these financial corps are not being financially transparent in disclosing all of these tax breaks they are now receiving, asserting that some of these numbers or not material enough. To correct this, the SEC should require all companies in their income tax footnotes to break out separately each tax break of more than 0.5% of the 35.0% statutory US federal income tax rate.
Third, the interest rates are extremely low now, and shouldn't continue like this for the entire long-term CBO scoring period.
And fourth, in addition to Big Financial Corps and Big Insurance Corps, this proposal would also eliminate the above tax breaks for all Foreign Financial Firms with US operations, for Big Hedge Funds, for Big Financial Partnerships, and for Big REITs.
And if it were concluded that the above tax breaks closed would also apply to Non-Financial Big Corps, then the positive CBO scoring would be substantially higher than the above numbers.
All of the tax proceeds under my proposal here should be used to reduce the US Debt.
And it is very difficult for me to understand how the US Congress would require a reduction of Medicare benefits in lieu of closing these egregious tax loopholes of Big Financial Corps.
