The Artful Dodgers: Banks
Three years ago, when it appeared the American economy was on the verge of collapse, Congress approved $700 billion in taxpayer-funded bailout funds, the Troubled Assets Relief Program (TARP), to prop up the same domestic banking sector that caused the recession. Soon after, however, when the Obama administration wanted to enact common sense regulatory reforms to ensure that banks couldn’t put the economy at risk again, the financial industry swarmed Capital Hill with lobbyists to water down the bill. Yet despite their ability to wrest billions of dollars from the government and defeat sensible regulation, some of the country’s major financial institutions, including Bank of America, Citigroup, and Goldman Sachs, pay little to no federal taxes at all.
Bank of America
Since then, the bank has tried to portray itself as consumer-oriented, though that effort has been marred by revelations that it paid a $137 million fine to the Securities and Exchange Commission (SEC) for having engaged in bid-rigging and other non-competitive behavior in their efforts to sell “municipal bond derivatives to various state agencies, municipalities, school districts and nonprofits.”12 The bank received a $1.9 billion tax refund from the IRS last year, despite making $4.4 billion in profits.13
Bank of America has a large governmental affairs program proportionate to its size. Over the past ten years the company’s PAC and employees have spent $11 million on contributions to federal candidates, with ten percent ($1.1 million) going to members of the relevant tax committees in the House and Senate. These contributions are married to an extensive lobbying effort to lower the bank’s tax and regulatory burden. Overall, for the past ten years, Bank of America has spent $24 million on lobbying.
Citigroup, which operates in 140 countries worldwide, was one of the largest contributors to the collapse of the banking sector in 2008, having been widely exposed to the housing derivatives market. As with Bank of America, the federal government was forced to provide a total of $45 billion in direct support and hundreds of billions more in loan guarantees to keep the company afloat.14 Nevertheless, it has done well since then, in part by drastically minimizing its tax burden. Last year, Citigroup made more than $4 billion in profits but paid no federal income taxes.15
The bank has long had close ties in Washington, including having Robert Rubin, the Treasury secretary during the Clinton administration, as an advisor during the banking crisis. Its PAC and employees have given $15 million in federal campaign contributions since 2000, with $1.5 million of it going to members of the House Ways and Means and Senate Finance Committees. It has an extensive lobbying operation too: over the past ten years it has spent $62 million lobbying on Capitol Hill.
Although it packaged and sold many of the financial products that helped create the housing bubble that led directly to the economic collapse of 2008, Goldman Sachs was one of the few major financial companies to emerge from the banking crisis relatively unscathed, in part because it was fortunate enough to receive a $10 billion federal bailout and almost $800 billion in federal loans. It then proceeded to pay 953 employees bonuses of at least $1 million, a move that drew outrage nationwide and prompted six senior executives to decline the extra compensation.16 That same year, the company paid only 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion.17
Goldman’s successes are due in large part to its close ties to policymakers in Washington. Two of its former executives, Robert Rubin and Henry Paulsen, have served as Treasury secretary, and it maintains an extensive government relations practice. Over the past ten years its PAC and employees have given $22 million in federal campaign contributions, with $1.4 million of that targeted at members of the House and Senate tax-writing committees. It has also spent $21 million lobbying the federal government over that time period.
12. “BofA Pays $137 Million to Settle Fraud Charges,” Reuters (December 7, 2010). Available online: http://www.cnbc.com/id/40551830/BofA_Pays_137_Million_to_Settle_Fraud_Charges.
14. “Citigroup $45 Billion Rescue Based on `Fear of the Unknown,' Barofsky Says,” Bloomberg News (January 13, 2011). Available online: http://www.bloomberg.com/news/2011-01-13/citigroup-45-billion-rescue-based-on-fear-of-the-unknown-barofsky-says.html.
16. “Wall Street Compensation – ‘No Clear Rhyme or Reason’,” Wall Street Journal (July 30, 2009). Available online: http://blogs.wsj.com/deals/2009/07/30/wall-street-compensation-no-clear-rhyme-or-reason/.