A House subcommittee said Thursday that it will investigate the Treasury Department's decision to change a long-standing law so that Citigroup could keep billions of dollars in tax breaks.
Rep. Dennis J. Kucinich (D-Ohio) called Treasury's action a "farce" and an "outrage" during a hearing Thursday of the domestic policy subcommittee of the House Committee on Oversight and Government Reform. Kucinich, the subcommittee chairman, said that he would demand an explanation from Treasury officials.
"This committee is not going to rest until we've examined this last deal threadbare, until we have spoken to every individual associated with it, examined every communication related to it, with every person that may have had an interest in it, or who may have had some kind of a channel of influence," Kucinich said.
The Internal Revenue Service, an arm of Treasury, ruled last Friday that Citigroup could keep $38 billion in tax breaks that otherwise would decline in value as the government sells its stake in the company. Federal law lets companies shelter profits from taxes in good years based on the amount of losses in previous bad years. But the law restricts the use of past losses if a company changes hands, to discourage profitable companies from buying unprofitable firms to avoid paying taxes.
Treasury's plan to sell its $25 billion stake in Citigroup would have qualified as a change of ownership under the law. The sale was postponed Wednesday after Citigroup's stock plunged in value, but Treasury officials said they still planned to sell the government's shares over the next year.
Treasury officials said the government needed to grant the tax break in order to sell its shares in Citigroup because the company could not afford the loss. Officials also said that preserving the tax break would help the government sell its shares at a higher price. And they said the law was never intended to apply to deals involving the government.
Kucinich tore into that logic Thursday, questioning why the government needed to sell its shares immediately. He said that the government was inherently conflicted by its roles as a tax collector and as a shareholder in the company. He said it appeared that the shareholders had gotten the upper hand.
"This does a disservice to the taxpayers, it does not help the taxpayers recover the value of their investment and it raises troubling questions about how the administration is negotiating its role," Kucinich said in an interview Thursday.
Kucinich also said that he planned to investigate whether the IRS had the legal authority to issue the ruling that benefited Citigroup.
"The idea that the government is using its authority to pick winners and losers is very dangerous," Kucinich said.