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[T]here’s more than meets the eye to the big legal settlements you’ve been reading about involving some of the nation’s biggest banks.
Actually, there’s less than meets the eye.
The dollar signs are big, but they aren’t as big as they look, at least for the banks. That’s because some or all of these payments will probably be tax-deductible. The banks can claim them as business expenses. Taxpayers, therefore, will likely lighten the banks’ loads.
Phineas Baxandall, senior analyst for tax and budget policy at the United States Public Interest Research Group, a consumer-oriented nonprofit, and Ryan Pierannunzi, a tax and budget associate there, explored this issue in a report published last week.
The report, titled “Subsidizing Bad Behavior,” details the history of the practice and suggests that government agencies should follow the S.E.C.’s lead and disallow deductibility in settlements. Barring that, the authors said, regulators should disclose only the after-tax amounts of settlements, so that people understand how much money is really being paid.
In an interview last week, Mr. Baxandall noted that government agencies might not want to do that. “From the agencies’ point of view, unless the public or someone is pressuring them to do otherwise, they want a big number to tout,” he said. “Tax deductibility allows them to come out with a bigger number.”
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