NY Times – Paying the Price in Settlements, but Often Deducting It

Other Peoples Money

Paying the Price of Settlements, but Often Deducting It

THE numbers seem eye-popping. So many billions here for supposed mortgage abuses, so many billions there for questionable foreclosures.

But there’s more than meets the eye to the big legal settlements you’ve been reading about involving some of the nation’s biggest banks.

Actually, there’s less than meets the eye.

The dollar signs are big, but they aren’t as big as they look, at least for the banks. That’s because some or all of these payments will probably be tax-deductible. The banks can claim them as business expenses. Taxpayers, therefore, will likely lighten the banks’ loads.

There is nothing new about corporations reaping tax benefits from payments made to remedy wrongdoing. Every so often, though, the topic stirs outrage. After the Gulf of Mexico oil spill, for example, BP received a $10 billion tax windfall by writing off $37.2 billion in cleanup expenses.

With multibillion-dollar mortgage settlements making headlines this year and last, the question has come to the fore again. Why should taxpayers subsidize corporations that are paying to right sometimes egregious wrongs? That is a particularly weighty question, given the urgent need for tax revenue to offset the ballooning federal budget deficit.

Rest here…

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