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When Fannie Mae Sells Tax Credits to Goldman Sachs, Taxpayers Lose
Fannie Mae is losing money, therefore it owes no taxes. However, it does have tax credits on its books. Enter the geniuses at Goldman Sachs. They want to buy the tax breaks from Fannie so that they can put them to good use.
The Post mentions this proposal in the context of a report on Fannie's 3rd quarter losses. It notes a Treasury Department analysis showing that any gains to Fannie from the sale will be offset by a loss of tax revenue to the Treasury.
Actually, this does not require much analysis and the government will be a guaranteed loser on this deal. Goldman does not pay $1.00 for $1.00 of tax credits. It might pay 95 cents for a dollar of credits, perhaps even 99 cents, but it will pay somewhat less than 100 cents on the dollar. Since Goldman would pay less to Fannie than the value of the lost tax revenue to the Treasury, this sale is a guaranteed loser for the government. There is no reason for it to allow Fannie to make this sale.
It is also worth mentioning that some of Fannie's losses are likely attributable to loans made after its government takeover in September of last year. One reason is that it continued to make loans to purchase homes at bubble-inflated prices. It could have avoided these losses by using rent-based appraisals.
--Dean Baker
COMMENTS (8)
First and foremost, congratulations to Dean for "Right to Rent".
If the government allows this deal I would agree it is not managing its receivership well. The Taxpayers don't need to be gouged by Goldman several times over.
Consideration of the deal should have ended at the executives of both companies, it is very disrespectful to the taxpayers who saved these institutions. It makes you wonder if the leadership has any morals at all.
Posted by: deanx | November 6, 2009 5:59 AM
I've never heard of this. Is this some special deal for Goldman Sachs and the Mae's or can anyone sell tax breaks they aren't in a position to use because of low net income? The constitution forbids laws for the benefit of a single person on two different counts.
Posted by: Erik L | November 6, 2009 8:00 AM
Dean,
I can't argue with your analysis. The piece makes me feel as if I voted for change but only picked up chump change.
Consider this piece as well on the piecemeal destruction of Sarbanes-Oxley.
http://www.nytimes.com/2009/11/06/business/06norris.html?_r=1
This piece should be viewed in light of the Petters case now being tried in Minneapolis.
Posted by: Ron Alley | November 6, 2009 10:19 AM
What??? Tax breaks can be bought and sold? One thing you really have to concede, when it comes to devising policies to redistribute money from the poor to the very very rich, nobody is more creative than our plutocracy.
Posted by: piglet | November 6, 2009 11:10 AM
There is no reason for congress to provide transferable tax breaks. (Except for being bribed by lobbyists, and to keep the costs of a program off budget. )
And it will always pay for the feds to outbid any other purchaser of the tax breaks should they be for sale. (Always worth .95 to outbid someone who will buy something at .90 which will cost me 1.00 )
Posted by: AndrewDover | November 6, 2009 12:34 PM
Erik L wrote, Is this some special deal for Goldman Sachs and the Mae's or can anyone sell tax breaks they aren't in a position to use because of low net income?
I think it's a common thing, but I'm not sure.
I do know for a fact that there was some kind of shenanigan where certain public works were transfered from local governments to private owners, to be "leased back" to the local gov. There was a "gain" from a tax break, which the private owners and local govs split. (That's all IIRC.)
Only problem is that the IRS changed it's mind about this practice, I think.
Posted by: liberal | November 6, 2009 12:55 PM
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Posted by: sesli sohbet | November 6, 2009 12:55 PM
Could the IRS count the tax deduction as profit?
For example, buying $100 of tax deduction for $80 could be considered a $20 profit.
Posted by: Hobbes | November 7, 2009 3:38 AM