Over the last two weeks, we have seen the Too Big To Fail banks agree to
some rather large settlements for a wide variety of lawsuits. Currently,
the JP Morgan Chase proposed $13 billion settlement is the largest. Chase
was sued by New York Attorney General Eric Schneiderman and by Freddie
and Fannie based on allegations of fraud related to loans sold by Chase
(or banks it acquired) that were not as advertised.
You may recall that this behavior was part of what caused the economy to collapse.
The usual apologists made loud noises about how this was unfair to JP Morgan
according to Forbes, Chase may end up being able to write at least $4 billion of the settlment
off on its taxes. This is because remedial fines are tax deductible. Punitive
fines (those designed to punish) are not. However, because remedial fines
serve to remedy past wrongs, they can be deducted. According to the Forbes
article, if Chase is able to write off the settlement, then taxpayers
will shoulder 35% of the settlement's burden.
Working regulatory penalties into tax deductions is nothing new. However,
in a case like this one, not a single penny should be tax deductible.
Behavior that led to collapse of the housing market and the economy as
a whole should not be tax deductible.