jonathan

Washington Post on the Quiet Windfall for U.S. Banks - For Shame!

This article does not make sense.

First, just because the tax law last permitted X instead of Y does not make Y wrong. In this case I would think that this reversal of the tax code makes a lot of sense. If one company buys another that has a lot of losses then the combined company has to absorb those losses...the resulting net for the combined company is what the tax should be based on. Trying to treat the single new company as though it were two separate entities is an artificial mechanism to maximize tax revenue; it is not a fair and straightforward evaluation.

Second, this artificial requirement to maximize payment of taxes when purchasing a loss-making company would prevent companies from merging for survival in this economic downturn. No bank could reasonably buy up a failing competitor since the extra tax would make it too expensive. That would make government bailout virtually the only option for a failing company.

The government has no money of its own.

That means that this outdated tax provision, designed to maximize tax revenue during boom times, would prevent a natural free-market solution (strong companies buying out distressed companies) leaving a bad solution (taxpayer bailout) as the only real option.

Based on the above, I would have to say that the Treasury decision was the right one.