Corporate Governance

Tax Breaks and Economic Reform

By J Robert Brown Jr.

The WSJ reports today about tax savings taken by corporations as a result of language in the Worker Homeownership and Business Assistance Act passed in November 2009.  The language of the bill is here:  Essentially the bill allowed corporations to carryback losses for 2008 and 2009 for five years (as opposed to two) and, as a result, get an immediate tax benefit from those losses (assuming their were profits in 2003-2008, a period when pretty much everyone was making money).  The provision does exclude TARP recipients from receiving the benefit.

The problem with the provision is not that the losses can be set off against profits (the losses have a 20 year carryforward and will be used in most cases eventually), but that the quicker refund was given out indiscriminately.  Except for TARP recipients, those that caused the financial crisis were allowed to benefit.  Moreover, the refund was not conditioned upon any specific use, whether additional hiring or additional lending.  Finally, while it allows companies to make use of their losses, it leaves in place the inability of individuals to deduct certain types of losses, such as losses on homes that are sold during the downturn.

Full post as published by The Race to the Bottom on March 24, 2010 (boomark / email).