On Sale: Your Government. Why Lobbying Is Washington’s Best Bargain…

I actually first read this when I picked up a copy of Time magazine [remember those?]It was a flimsy copy of the original Time and the article took up almost 8 pages…

So there is quite a bit missing here but the general idea is still intact. Despite the promised transparency from Senator Dodd and Senator Frank, whose two committees wrote the bill, the   largely brokered on June 24th when committee members, their staff, lobbyists and reporters spent 20 hours crowded into a large senate hearing room, where last minute deals were made on the fly until 5 o’clock in the morning…

~jude/rockingjude

Illustration by John Ritter for TIME

By STEVEN BRILL – Fri Jul 2, 6:45 pm ET

The following is an abridged version of an article that appears in the July 12, 2010, print and iPad editions of TIME.

Two weeks ago, along a marble corridor in the Rayburn House Office Building in Washington, I watched about 40 well-dressed men (and two women) delivering huge value for their employers. Except that we, the taxpayers, weren’t employing them. The nation’s banks, mortgage lenders, stockbrokers, private-equity funds and derivatives traders were.

They were lobbyists – the best bargain in Washington. Capitol Tax Partners, for example, is one of 1,900 firms that house more than 11,000 lobbyists registered to operate in Washington. Last year, according to the Center for Responsive Politics (CRP), firms like Capitol Tax were paid a total of $3.49 billion for unraveling the mysteries of the tax code for a variety of businesses. According to Capitol Tax co-founder Lindsay Hooper, his firm provided “input and technical advice on various tax matters” to such clients as Morgan Stanley, 3M, Goldman Sachs, Chanel, Ford and the Private Equity Council, which is a trade group trying to head off a plan to increase taxes on what’s called carried interest, a form of income enjoyed by the heavy hitters who run venture-capital and other types of private-equity funds. (Time Warner, the parent company of TIME magazine, is also a client of Capitol Tax Partners.)

Since 2009, the Private Equity Council has paid Capitol Tax, which has eight partners, a $30,000-a-month retainer to keep its members’ taxes low. Counting fees paid to four other firms and the cost of its in-house lobbying staff, the council reported spending $4.2 million on lobbying from the beginning of 2009 through March of this year. Now let’s assume it spent an additional $600,000 since the beginning of April, for a total of $4.8 million. With other groups lobbying on the same issue, the overall spending to protect the favorable carried-interest tax treatment was maybe $15 million. Which seems like a lot – except that this is a debate over how some $100 billion will be taxed, or not, over the next 10 years. (Read about lobbyists and health care.)

And what did the money managers get for their $15 million investment? While lawmakers did manage to boost the taxes of hedge-fund managers and other folks who collect carried interest as part of their work, they agreed to a compromise (tucked into a pending tax bill) that will tax part of those earnings at the regular rate and another part at a lower capital-gains rate. The result? A tax bite about $10 billion smaller than what the reformers wanted.

The battle over that carried-interest provision was dwarfed by the real action this year – the massive financial-regulatory-reform bill hammered out by a House-Senate conference committee and targeting what the White House says were the causes of the economy’s near meltdown in 2008. The legislation, which would bring more change to Wall Street than anything else enacted since the New Deal, was a Super Bowl for lobbyists.(Read more about the financial reform bill.)

The 40 people I saw in that Capitol Hill corridor in mid-June were part of an army of approximately 2,000 monitoring the two-week-long conference committee between Senators and Representatives trying to reconcile their different versions of the bill. Just outside the House Financial Services hearing room, two dark-suited, slightly graying men madly BlackBerrying looked up and blanched at my press credentials. After being promised anonymity, they explained that they’d been dispatched by their boss, as one put it, “to grab one of the senior staff on the Republican side and give him an idea about how to reword something in the Volcker rule.”

The Volcker rule, named for former Reserve chairman Paul Volcker, who was one of first to suggest it, would prohibit banks from putting their own money into risky ventures such as private-equity or real estate deals. It’s a restriction that its advocates believe could prevent the next financial implosion. Bankers hate it, but their lobbyists have been unable to fight it off. Instead, they have been chipping away at it, suggesting provisions that would allow some percentage of those funds to go into high-risk deals, delay the rule’s implementation or exempt some big players

The two lobbyists I encountered in the hall are working on a narrower Volcker-rule carve-out. They’re representing “some green-energy interests,” one said. What’s that got to do with the Volcker rule? He explained that Washington is encouraging green-energy investments by granting tax credits, but only investment entities like banks that make consistent profits have predictable tax liabilities and therefore can make use of such tax credits.

By the time the bill was finished, lobbyists seeking Volcker-rule carve-outs had won complete exemptions for most mutual-fund companies and a provision allowing banks to manage funds and still make investments of up to 3% of their capital and to take up to seven years to sell off the investments they already had. Another highly technical tweak allowed banks to define their capital differently from what was originally proposed, meaning that 3% limit on how much they could invest suddenly got lots higher. And the clean-energy troops won a provision that, depending on how the implementation rules get written, might allow exceptions for investments in small or start-up businesses that “promote the public welfare.”

Complexity is the modern lobbyist’s greatest ally. Three lobbyists showed me three different proposals for rewording what may be the bill’s biggest-money section: a provision in the Senate version that would force the five major banks that do most of the country’s trillions of dollars of trading in derivatives – and make nearly $23 billion a year doing so – to spin off those operations. Even holding the dueling paragraphs side by side by side, I found it difficult on first read to appreciate the differences. But with some pointers from the lobbyists, it was clear that billions in profits depended on the variations in this nearly impenetrable language

“Complexity is our enemy,” says Elizabeth Warren, chair of the congressional panel overseeing the Troubled Asset Relief Program, who conceived one of the legislation’s marquee provisions – a consumer-protection agency to regulate mortgages, credit cards and other financial products. “The more complex these bills are,” she complains, “the more they can outgun us.”

http://news.yahoo.com/s/time/08599200088000

New Tax Rules: The Hidden Corporate Bailout

snip:

Corporate America has a new Santa Claus — the taxman. And this year he is bringing bags of cash, billions of dollars’ worth, to all the suited boys and girls.

While the $700 billion bailout has been the focus of attention and scrutiny, the Internal Revenue Service and lawmakers have been quietly making changes to the tax code and how it is followed in an effort to further boost the financial strength of ailing companies. At the same time, though, the changes drain billions of dollars of badly needed tax revenue when the federal deficit is mushrooming. Many of the changes may lower corporate-tax revenue for years to come.

“The IRS has spent the past few months trying to make the rules as liberal as possible,” says Robert Willens, an accounting and tax expert in New York. “They have been decreasing corporate taxes pretty consistently.” (See pictures of the recession of 1958.)

The IRS this year has issued 113 notices, many of which will lower the taxes companies will pay this year and in the future. That breaks the previous record of 111 in 2006, and is nearly double the 65 issued in the last year of Bill Clinton’s presidency. Lawmakers, too, have passed tax changes and are pushing for more, which will save corporations billions of dollars this year. One of the biggest windfalls could come from a proposed change in the so-called carryback rule, which would fatten the tax rebate companies get when they have losses. The extension would be similar to one that was passed after 9/11.

A Magic Way to Make Billions

snip:

The wording is so bland and buried so deep within a 324-page budget document that almost no one would notice that a multibillion-dollar scam is going on. Not the members of Congress voting for it and certainly not the taxpayers who will get fleeced by it. And that is exactly the idea.

With Washington reeling from the Abramoff lobbying scandal and Republicans and Democrats alike pledging to crack down on influence peddling, with one lawmaker already gone from Capitol Hill because he traded favors for cash, you’re probably guessing this isn’t the best time for members of Congress to dispense a fortune in favors to their friends.

Guess again.

Buried in the huge budget-reconciliation bill, on which House and Senate conferees are putting the final touches right now, are a few paragraphs that accomplish an extraordinary feat. They roll back the price of a barrel of crude oil to what it sold for two years ago. They create this pretend price for the benefit of a small group of the politically well connected. You still won’t be able to buy gasoline for $1.73 per gal. as you did then, instead of today’s $2.28. You still won’t be able to buy home heating oil for $1.60 per gal., in place of today’s $2.39. But a select group of investors and companies will walk away with billions of dollars in tax subsidies, not from oil but from the marketing of a dubious concoction of synthetic fuel produced from coal and dependent on government tax credits tied to the price of oil.

From 2003 through 2005, TIME estimates, the synfuel industry raked in $9 billion in tax credits. That means the lucky few collectively cut their tax bills by that amount, which would be enough to cover a year’s worth of federal taxes for 20 million Americans who make less than $20,000 a year and pay income taxes.

Recession Dividend: A Boom in Corporate Tax Credits

snip:

Corporate America’s biggest assets coming out of the recession could be its losses.

By the end of this year, companies in the Standard & Poor’s 500 are likely to have lost as much as $400 billion since the start of 2008, according to S&P. It’s a sign of just how badly the recession has hit big companies. But it could also turn out to be a leg up for corporations in the recovery. All that red ink could turn out to be a little-noticed boon for corporate bottom lines. That’s because companies are allowed to record a tax credit for current losses in order to lower their tax bill when they return to profitability.(See six year-end tax tips.)

This isn’t all that out of the ordinary for a recession. Typically, companies ring up tax credits in down years and use the credits to plump up the bottom line when business picks up. But what is turning the run-of-the-mill tax credit into a bonanza this recovery is the huge amount that corporate America has lost in the past two years. Also, stimulus spending has turned around the economy and corporate profits faster than normal for a particularly deep recession. The speedy turnaround in corporate profits, which are expected to soar 60% in the fourth quarter, is raising the value of the tax credits because they can be quickly cashed in. What’s more, Congress is close to passing a bill that would make it even easier than usual for companies to turn recent losses into immediate cash.

“The last time we saw this kind of corporate tax relief was in the early days of the Bush Administration,” says Robert Willens, a tax expert.

It is hard to know just how much that $400 billion in losses will end up lowering corporate America’s tax bill. Companies are allowed to record tax credits for current losses and use those credits to lower their bill when they return to profitability. If companies have more tax credits than profits, they are allowed to carry those credits forward for up to 20 years or until they are used up.(See 10 ways to spend your tax refund.)

Public companies record two types of earnings, one to the SEC and one to the IRS. It is perfectly legal for these numbers not to match, and often they don’t. In 2008, retailer Macy’s lost just under $5 billion, but only $33 million of that qualified as a tax loss eligible for credits against future profits. Other times a company books a much bigger tax benefit than its actual losses. Citigroup, for instance, had a bottom-line loss of nearly $28 billion in the numbers it reported to shareholders and the SEC. But at the same time, it recorded a $30 billion increase in tax credits in 2008.

Normally, it can take years for companies to cash in these tax credits, and when they do their value may be greatly diminished if inflation has reared up. But the stimulus is producing a sharp turnaround in the economy, allowing companies to cash in their credits sooner than usual. What’s more, continued low inflation is allowing the credits to retain their value.(See the top 10 tax dodgers.)

Congress is moving to make those tax losses even more valuable. Typically, when a company loses money, it can apply for a refund of the taxes it has paid on profits over the past two years. However, Congress is moving closer to extending the so-called tax loss carryback provision to five years, instead of two. Senate majority leader Harry Reid recently threw his support behind the extension of the tax refund, adding it to a bill that would extend unemployment benefits. On Nov. 2, the Senate voted to close debate on the bill, which means a final vote to approve the bill would come later this week. It is expected to pass both houses of Congress easily.

The extension would mean big bucks for corporate America. And unlike “carryforwards,” which can only be realized if a company returns to profitability, carrybacks generate immediate cash, as long as the company has earned money in the past half-decade. The Joint Committee on Taxation recently estimated that the carryback extension would result in refunds of $33 billion to companies in 2010.

Senators Take On Obama’s Czars

There has been a lot of talk — and some hyperbole — in recent weeks surrounding the Obama Administration’s growing stable of imperial “czars.” But is there anything to all this chatter? This is what the Senate Homeland Security and Governmental Affairs Committee will examine on Thursday in the first full committee hearing on the topic. At the heart of the session: does the proliferation of czars — a practice favored by past Presidents from both parties — undermine the ability of Congress to conduct oversight of the Executive Branch?

“The use of so-called czars in the White House certainly didn’t begin with President Obama,” says Senator Joe Lieberman, a Connecticut independent and the committee’s chairman. “But it has grown over the years, and when misused, it may well frustrate the ability of Congress to carry out our responsibility to oversee how the taxpayer’s money we appropriate is being spent. The questions raised by the continuing use of White House czars are important and complicated, but the answers are not obvious or easy.”(See TIME’s pictures of Barack Obama.)

George Washington, looking for guidance on how to run the country, turned to the Senate and then the Supreme Court for advice. After being rebuffed by both, he created the first Cabinet, which consisted of an Attorney General and the Secretaries of State, War and Treasury. But 30 years later, the official Cabinet was supplanted in the graces of the nation’s seventh President by an unofficial circle of advisers that Andrew Jackson called his “Kitchen Cabinet.” Over the years, Grover Cleveland had a “Fishing Cabinet,” Teddy Roosevelt a “Tennis Cabinet,” Warren G. Harding a racy “Poker Cabinet” and Herbert Hoover something he called a “Medicine-Ball Cabinet.”

But the first President to truly create czars as we know them today was Franklin D. Roosevelt, who had his “brain trust” and “assistant presidents,” according to Harold Relyea, a retired 35-year veteran of the Congressional Research Service who specialized in presidential powers, which he wrote in a statement for the hearing.