As if $22 billion in bonuses were not enough, Goldman Sachs would now like to obtain another $1 billion in tax benefits from the federal government.
As with the $12.9 billion that Goldman Sachs received from the U.S. government via payments made to the American International Group, Goldman Sachs would obtain an indirect federal benefit by using tax credits the government provided to Fannie Mae to offset its own profits and thus its federal tax payments. As the Wall Street Journal reported, Goldman Sachs might be purchasing up to $1 billion of Fannie Mae's tax credits. However, the tax credits, which are designed to encourage additional investment in low-income housing, are useful only if the company claiming them is profitable. And, with Fannie Mae currently a very unprofitable company, it does not have much use for the credits. But, after obtaining a $10 billion bailout from the federal government last fall, Goldman Sachs is on pace to earn record profits this year and could use these credits to reduce its tax liability.
This deal does not seem to the taxpayer's advantage, however. The Treasury Department's purchase of nearly $46 billion of Fannie Mae's preferred stock made U.S. taxpayers major owners of the government-sponsored enterprise. This investment so far has not been very profitable for the taxpayer --- Fannie Mae lost just under $40 billion in the first six months of this year. The government has already spent $91 billion propping up Fannie Mae and Freddie Mac.
The Treasury Department has the ability to decide whether to allow this transaction to take place. Unfortunately, it looks like Congress and the administration have given up on collecting much revenue from the corporate income tax, where revenues have fallen to just $139 billion this year. Latest reports show that Congress will allow corporations to further reduce their tax bill through the Worker, Homeownership, and Business Assistance Act of 2009. The Joint Committee on Taxation
estimates that businesses will claim $33.2 billion of tax refunds next year if all corporations, not just small businesses, are allowed to use their losses to obtain refunds of taxes paid in the past five years.
Rather than allowing Goldman Sachs to reduce its tax liability by using Fannie Mae's tax credits, the U.S. government might consider just taking the tax credits off of Fannie Mae's books. U.S. taxpayers are likely to view this direct assistance to Main Street as preferable to once again providing indirect assistance to one of the most profitable Wall Street firms.