US businesses turn to tax fight
US businesses turn to tax fight
The Republican, who lost in last week’s presidential vote, was backed overwhelmingly not only by Wall Street, but also by the oil and gas, agribusiness, construction, private equity and transportation sectors, according to data from the Center for Responsive Politics.
That puts some businesses on the outs with President Barack Obama and his fellow Democrats, who tightened their grip on the Senate in last week’s elections, some corporate lobbyists said.
“For most businesses, this wasn’t necessarily their desired outcome ... There’s some patching up that needs to be done,” said Pam Olson, a tax lawyer at PricewaterhouseCoopers and a former senior tax official under President George W. Bush.
Alone among major segments of Corporate America, the high technology and communications sector wagered heavily on Obama.
Tax breaks that are central to businesses, both in and out of favor with Democrats, will be in play as Washington deals with the year-end “fiscal cliff” and as lawmakers edge toward a possible full-scale overhaul of the tax code in 2013-2014.
The president is expected to meet with business leaders today to talk about fiscal issues. Top of the agenda: avoiding the fiscal cliff, which is a volatile mix of tax increases and spending cuts that, absent a deal in Congress to deal with it, could push the United States into recession.
Among those slated to attend the White House meeting are General Electric Co. Chief Executive Jeffrey Immelt, already a top Obama adviser, American Express Co. CEO Kenneth Chenault and Aetna Inc. CEO Mark Bertolini.
“I really don’t think it’s any secret that the business community has had some reservations about the agenda in Washington over the course of the last four years, but that is now history,” Jay Timmons, head of the National Association of Manufacturers, said last week on a conference call with reporters.
The tax aspects of the “fiscal cliff” mostly apply to individuals, but some corporate breaks are involved. One is a provision that lets companies accelerate depreciation of new equipment. This is scheduled to expire at the year-end, potentially raising tax costs for capital-intensive businesses.
Similarly, the research-and-development tax credit cuts across multiple sectors. The R&D credit — one of many items on the “tax extenders” list — expired at the end of 2011. It is up for renewal and has wide political support.
Divisions will emerge as the tax debate unfolds among businesses based on the actual tax rates paid by each sector. Retailers such as Wal-Mart Stores Inc. tend to pay higher rates, while drug makers such as Pfizer Inc. pay much less than the 35 percent corporate tax rate that is on the books.
Further, businesses organized as “S-corps” — which pay taxes through the individual tax code and not the corporate tax code as “C-corps” do — will see tax rates rise if Congress agrees with Democrats to lift rates on income above $ 200,000.
Case in point: JPMorgan Chase & Co. CEO Jamie Dimon’s recent statement that he would be willing to pay higher personal tax rates in exchange for a deficit-cutting deal at year’s end. As a C-corp CEO, Dimon’s personal tax situation does not affect JPMorgan. That is not the case for an S-corp executive.
Other corporate tax provisions are more specific. Some have been targeted for repeal by the Obama administration, possibly to help pay for lowering the overall corporate income tax rate from 35 percent and potentially paring the deficit.
Private equity firms have fought for years to protect the “carried interest” tax benefit that lets senior partners pay the 15 percent capital gains tax rate on a big slice of their gains, rather than the top 35 percent income tax rate.
The Obama administration has targeted the carried interest break for repeal, but the industry so far has fought this off.
Oil and gas companies have several tax provisions — such as the well depletion allowance and expensing of intangible drilling costs — that they have defended for many years. Obama would like to remove these, too.
“We certainly don’t want to be used as a pay-for,” said Brian Johnson, a senior tax adviser at the American Petroleum Institute, the industry’s trade group, using Washington short-hand for a tax provision that would raise revenues if repealed.
He said the industry has no fences to mend with Democrats and that raising taxes on energy companies would be “a short-sighted solution.” The institute is set to kick off a multi-state advertising campaign within days.
Silicon Valley and the communications business are in a better position than energy and finance companies in defending their tax positions, said Dean Garfield, president of the Information Technology Industry Council, which represents technology companies.
Regarding the general state of business-White House relations, Garfield acknowledged: “There are some feelings that have been hurt.”
Looking to 2013, lawmakers are aiming for a full-scale revamping of the tax code. Carrying out this politically dicey task is far from certain, but the effort will reveal big fault lines.
For example, curbing the value of big breaks such as the home mortgage write-off is among the options being floated to minimize the code’s special favors. That would hurt homebuilders and banks that finance housing, but it would leave export-heavy industries such as technology and aerospace relatively unscathed.
An analysis by the Center for Responsive Politics, a campaign finance watchdog, showed that executives and family members of energy and natural resource companies gave $ 8.6 million to Romney and $2.2 million to Obama.
The figures, drawn from Federal Election Commission records, are current up to Oct. 25 so they exclude the campaign’s last days before the Nov. 6 election.
The energy sector’s nearly 4-to-1 bias toward Romney exceeded Wall Street’s. The finance, insurance and real estate sector donated $52.1 million to Romney and $ 18.7 million to Obama, a nearly 3-to-1 ratio, the data showed.
Other sectors that backed Romney included agribusiness at 3-to-1; construction, about 2-to-1 and transportation, 4-to-1.
Conversely, Obama was supported by the communications and electronics sector by about 3-to-1.
“An election is really a reset button and the American people have spoken. They have chosen their leaders. The business community will respond to that,” Timmons said.
— Kevin Drawbaugh & Kim Dixon are columnists with Reuters. The views expressed are their own.
Wells Fargo to pay $1B for mortgage, auto lending abuses
- Fine the latest in a series of setbacks for US bank
- Federal Reserve in February prohibited lender from growing assets until governance issues addressed
Wells Fargo will pay $1 billion to federal regulators to settle charges tied to its mortgage and auto lending business, the latest chapter in years-long, wide-ranging scandal at the banking giant. However, it appears that none of the $1 billion will go directly to the victims of Wells Fargo’s abuses.
In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau.
The action by the CFPB is notable because it is the first penalty imposed by the bureau under Mick Mulvaney, who President Trump appointed to take over the consumer watchdog agency in late November. The $500 million is also the largest penalty imposed by the CFPB in its history, the previous being a $100 million penalty also against Wells Fargo, and matches the largest fine ever handed out by the Comptroller of the Currency, which fined HSBC $500 million in 2012.
The fine against Wells Fargo had been expected. The company disclosed last week that it was in discussions with federal authorities over a possible settlement related to its mortgage and auto lending businesses, and that the fine could be as much as $1 billion.
The settlement also contains other requirements that would restrict Wells Fargo’s business. The bank will need to come with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees.
“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” said Wells Fargo Chief Executive Tim Sloan in a statement.
The $500 million paid to the Comptroller of the Currency will be paid directly to the US Treasury, according to the order. The $500 million paid to the CFPB will go into the CFPB’s civil penalties fund, which is used to help consumers who might have been impacted in other cases. But zero dollars of either penalty is going directly to Wells Fargo’s victims.
The bank has already been reimbursing customers in its auto and mortgage businesses for these abuses. Wells Fargo has been refunding auto loan customers since July and been mailing refund checks to impacted mortgage customers since December.
While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.
“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!,” Trump wrote on Twitter back in December.
The abuses being addressed Friday are not tied directly to Wells Fargo’s well-known sales practices scandal, where the bank admitted its employees opened as much as 3.5 million bank and credit card accounts without getting customers’ authorization. But they do involve significant parts of the bank’s businesses: auto lending and mortgages.
Last summer Wells Fargo admitted that hundreds of thousands of its auto loan customers had been sold auto insurance that they did not want or need. In thousands of cases, customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.
In a separate case, Wells Fargo also admitted that thousands of customers had to pay unnecessary fees in order to lock in their interest rates on their home mortgages. Wells Fargo is the nation’s largest mortgage lender.
Wells Fargo has been under intense scrutiny by federal regulators for several months. The Federal Reserve took a historic action earlier this year by mandating that Wells Fargo could not grow larger than the $1.95 trillion in assets that it currency held and required the bank to replace several directors on its board. The Federal Reserve cited “widespread abuses” as its reason for taking such an action.
This settlement does not involve Wells Fargo’s wealth management business, which is reportedly under investigation for improprieties similar to those that impacted its consumer bank. Nor does this involve an investigation into the bank’s currency trading business.
Consumer advocates have been critical of the Trump administration’s record since it took over the CFPB late last year. However, advocates were pleased to see Wells Fargo held to account.
“Today’s billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo’s fraudulent and abusive practices,” said Pamela Banks, senior policy counsel for Consumers Union.