A tax break provided to American International Group came under heavy fire today from four members of the former oversight panel created to monitor the Troubled Asset Relief Program.
In a statement, the four say Congress “should not allow AIG to avoid paying taxes for years into the future.”
Those signing the statement included Elizabeth Warren, former chair of the Congressional Oversight Panel and current candidate in the Democratic primary for the U.S. Senate seat now held by Scott Brown, R-Mass.
“AIG gambled recklessly on mortgage-backed securities and lost,” says Warren.
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“When the government bailed out AIG, it should not have allowed the failed insurance giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives AIG a leg up against its competitors at a time when everyone should have to play by the same rules—especially when it comes to paying taxes,” Warren says.
Damon Silvers, Mark McWatters, and Kenneth Troske joined Warren in the statement.
Their comments were prompted by AIG’s fourth quarter earnings report, released Feb. 24, in which AIG reports a $19.8 billion quarterly profit due mainly to a tax-related accounting gain.
AIG did not pay taxes on the heavy losses it took in the past and was given tax breaks on future profits. AIG tapped into about 65 percent of the money, $17.7 billion, in that pool for the fourth quarter after assessing its situation.
But according to the statement from Warren and the others, when a company changes ownership, longstanding tax laws limit the extent to which it can offset future taxes with past losses. The statement explains, however, that beginning in late 2008, the Treasury Department quietly issued a series of notices that exempted AIG from those limits.
The statement says that this provided AIG an additional taxpayer subsidy: bailout money and a special tax break that contributed to the profits that AIG took in February.
AIG, though, says in a statement, “AIG is adhering to well-settled tax law that a company can use losses to offset its income. More important, AIG has repaid the American taxpayer more than $45 billion to date and is committed to taking all possible steps so that American taxpayers can continue to recoup their investment in AIG at a profit.”
In a separate comment on the matter, Silvers says, “Exempting AIG from the normal corporate tax rules is harmful to the public interest. This corporate tax break transfers public money to AIG’s private shareholders and inflates executive pay at AIG—both at the public’s expense.”
McWatters and Troske add in a joint statement, “This tax break only adds to the benefits received by the executives, shareholders and creditors of AIG, all of whom profited from the taxpayer-financed bailout.”
More importantly, they say, “This benefit exacerbates the distortions produced by Treasury’s bailout of too-big-to-fail firms while also allowing Treasury to further mask the true cost of the TARP.”
The government provided AIG $182 billion in cash aid after it ran into trouble in 2008. But, that did not include an additional $25 billion from a Federal Reserve Bank of New York loan facility that the agency kept secret until a Federal Court ordered it disclosed in response to a lawsuit filed by Bloomberg News.