September, 15 2014, 02:00pm EDT
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Taxpayers will Bear Nearly $200 Million of Friday's HSBC Settlement
FHFA fails to prevent bank from treating settlement as tax write-off
WASHINGTON
Friday's $550 million settlement between the Federal Housing Finance Agency (FHFA) and HSBC North American Holdings Inc. can be treated as a tax write-off by the bank, shifting $192.5 million onto taxpayers. Because the FHFA did not specify that the settlement payment cannot be treated as a regular business expense, HSBC will be able to deduct the entirety of the $550 million payment.
"The FHFA has failed to protect taxpayers," said Michelle Surka, program associate with the United States Public Interest Research Group. "Every dollar of lost revenue from HSBC's write off will be borne by ordinary Americans in the form of program cuts, higher taxes, or more national debt."
The settlement resolves claims of HSBC violating federal and state securities laws in connection with false representation of mortgage-backed securities that contributed to the financial crisis in 2008.
The FHFA, announcing the settlement late Friday afternoon, did include the full text of the settlement agreement in its press release, a transparency measure that many agencies do not always take.
By law, fines and penalties cannot be treated as regular business expenses, and therefore are not tax deductible. However, the FHFA does not designate the settlement payment as a "penalty", instead calling it merely a "lump sum payment". Even specified penalties sometimes get deducted as business expenses if corporations deem them to be "compensatory" or "restitutive" rather than punitive.
The settlement releases the bank from potential charges it would have faced in court. A September 29th trial was scheduled and HSBC had said it could have faced up to $1.6 billion in damages. The FHFA signed a similar settlement with Goldman Sachs last month, granting Sachs a similar tax windfall of $420 million.
"The door is open for HSBC to treat this settlement as a tax deductible expense, just another cost of doing business," continued Surka. "The FHFA is continuing a practice in which part of the burden of these settlements is shifted back onto taxpayers."
The bipartisan Truth in Settlements Act (S.1898) passed through Senate committee without opposition in July. The legislation, which has a bipartisan counterpart in the House (H.R.2434), would require federal agencies to disclose the tax deductibility of future settlements and would require corporations to disclose when they deduct those settlements. Such measures would protect taxpayers and allow for greater public scrutiny of settlement agreements.
You can also read U.S. PIRG's report on tax write-offs in settlements here: "Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.
U.S. PIRG has created a fact sheet on Wall Street settlement tax deductions.
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), stands up to powerful special interests on behalf of the American public, working to win concrete results for our health and our well-being. With a strong network of researchers, advocates, organizers and students in state capitols across the country, we take on the special interests on issues, such as product safety,political corruption, prescription drugs and voting rights,where these interests stand in the way of reform and progress.
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G20 Nations Take 'Important Step' Toward Fair Taxation of Ultra-Rich
"Our proposal for a common minimum tax on billionaires is now on the map. G20 finance ministers have started to engage with it—and there is no going back," said progressive economist Gabriel Zucman.
Jul 26, 2024
Despite pushback from the United States delegation, finance ministers at a meeting of the G20 countries in Rio de Janeiro on Thursday agreed on the need to develop a global taxation system in which the richest in the world are taxed at a higher rate—potentially unlocking hundreds of billions of dollars annually to help close the international wealth gap.
Ahead of the G20 Summit scheduled for November, which Brazilian President Luiz Inácio Lula da Silva's government will host, the finance officials met this week to discuss economic issues and ultimately agreed to start a "dialogue on fair and progressive taxation, including of ultra-high-net-worth individuals."
The Lula government pushed for a proposal by progressive economist Gabriel Zucman, who serves as a G20 adviser and is a professor of economics at University of California, Berkeley.
Zucman's proposal calls for a minimum 2% tax on the fortunes of the world's roughly 3,000 wealthiest billionaires, which could raise approximately $250 billion globally per year.
"With full respect to tax sovereignty, we will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed," the ministers wrote in a declaration that was viewed by Politico.
"Finally, the richest people are being told they can't game the tax system or avoid paying their fair share. Governments have for too long been complicit in helping the ultra-rich pay little or zero tax."
The agreement to discuss higher taxes for the rich was reached despite objections from Germany and the U.S., whose treasury secretary, Janet Yellen, said that "tax policy is very difficult to coordinate globally."
"We don't see a need or really think it's desirable to try to negotiate a global agreement on that," Yellen said at a press conference before the ministers met Thursday evening. "We think that all countries should make sure that their taxation systems are fair and progressive."
Although the agreement only states that countries will discuss the need for the wealthy to pay their fair share to help fight poverty and fund public education and other services, the global anti-poverty group Oxfam International said the meeting represented "serious global progress."
"For the first time in history, the world's largest economies have agreed to cooperate to tax the ultra-rich," said Susana Ruiz, tax policy lead for Oxfam. "Finally, the richest people are being told they can't game the tax system or avoid paying their fair share. Governments have for too long been complicit in helping the ultra-rich pay little or zero tax. Massive fortunes afford the world's ultra-rich outsized influence and power, which they wield to shield, stash, and supersize their wealth, undercutting democracy and widening inequality."
An Oxfam study released ahead of this week's meetingfound that the richest 1% of people in the world increased their fortunes by $42 trillion over the past decade, while taxation fell to "historically" low rates.
Ruiz called on G20 heads of state to "go further than their finance ministers" at the G20 Summit in November "and back concrete coordination: agreeing on a new global standard that taxes the ultra-rich at a rate high enough to close the gap between them and the rest of us."
"Brazil has kickstarted a truly global approach to tax the ultra-rich. But the work is just beginning and international cooperation is crucial," said Ruiz, adding that the task of ensuring the wealthiest people in the world are taxed fairly must not be left up to the Organization of Economic Cooperation and Development (OECD)—"the club of mostly rich countries."
Zucman expressed hope that the agreement between the G20 finance ministers marked a "historic" moment, and called it "an important step in the right direction."
"Our proposal for a common minimum tax on billionaires is now on the map. G20 finance ministers have started to engage with it—and there is no going back," said Zucman. "In its declaration, the G20 finance ministers commit to important preliminary steps. They need to do more and commit to a coordinated minimum tax on the super-rich. We know that it is practically doable—we know the solutions exist. And I'm confident, because there is overwhelming popular demand everywhere to get there."
"The status quo, in which the biggest winners from globalization are allowed to enjoy the lowest tax rates, is simply not sustainable," said Zucman.
The findings released this week by Oxfam highlighted polling that "consistently" found people across the world support raising taxes on the richest individuals.
"Eighty percent of Indians, 85% of Brazilians and 69% of people polled across 34 countries in Africa support increasing taxes on the rich," said the group. "Nearly three-quarters of millionaires polled in G20 countries support higher taxes on wealth, and over half think extreme wealth is a 'threat to democracy.'"
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) applauded the agreement and called on the G20 to "go further in [the] fight to tax the rich."
"To take this forward, G20 should support work on this at the Framework Convention on International Tax Cooperation currently being negotiated at the United Nations," said Jayati Ghosh, co-chair of the ICRICT.
A U.N. committee is scheduled to submit "terms of reference" regarding a tax convention framework in August, and a final vote on the framework is expected by the end of 2025.
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UN Chief Says Rich Countries 'Signing Away Our Future' With Fossil Fuel Development
"I must call out the flood of fossil fuel expansion we are seeing in some of the world's wealthiest countries," U.N. Secretary-General António Guterres said. "Countries must phaseout fossil fuels—fast and fairly."
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United Nations Secretary-General António Guterres on Thursday criticized the world's wealthiest countries for expanding fossil fuel production, one day after an analysis in The Guardian showed that five Western countries are leading a global surge in oil and gas development.
Guterres' remarks came as part of a "call to action" on extreme heat at a press conference in New York, after record-setting world temperatures earlier in the week and a series of deadly heatwaves across the world this year.
Guterres, who has long been outspoken on the need for climate action, called extreme heat one of the "symptoms" of a "disease" that is the "addiction" to fossil fuels.
"I must call out the flood of fossil fuel expansion we are seeing in some of the world's wealthiest countries," he said nine minutes and 53 seconds into his remarks. "In signing such a surge of new oil and gas licenses, they are signing away our future. The leadership of those with the greatest capabilities and capacities is essential. Countries must phaseout fossil fuels—fast and fairly."
The U.N. chief's comments may have been based on Wednesday's findings that five Western countries—the United States, the United Kingdom, Canada, Australia, and Norway—have significantly scaled up oil and gas licensing this year, despite their international climate commitments. The findings came from an analysis of industry data conducted by the International Institute for Sustainable Development and published in The Guardian.
The analysis found that the five countries together have licensed or plan to license projects in 2024 that will emit 11.9 billion metric tons of greenhouse gas emissions over their lifetimes. The news renewed discussions about whether countries such as the U.S., though they claim to be climate leaders, should be considered "petrostates"—a contemptuous term formerly reserved for countries such as Saudi Arabia and Russia.
Guterres has long been outspoken on the issue of fossil fuels. At the COP28 U.N. climate change summit in Dubai last year, he spoke forcefully about the need for phasing them out and meeting the 1.5°C target set in the Paris agreement.
"The 1.5°C limit is only possible if we ultimately stop burning all fossil fuels," he said. "Not reduce. Not abate. Phase out—with a clear timeframe aligned with 1.5°C."
The loophole-ridden deal that emerged from Dubai didn't match Guterres' ambitions, but did call for "transitioning away from fossil fuels."
His call to action on Thursday included a four-part plan for dealing with extreme heat: caring for the most vulnerable, protecting workers, boosting resilience, and limiting further temperature rise by phasing out fossil fuels and scaling up renewables.
Leaders across the board must wake up and step up their #ClimateAction.
That means governments – especially #G20 countries – as well as the private sector, cities and regions.
They must #ActNow as though our future depends on it – because it does.
— António Guterres (@antonioguterres) July 26, 2024
Guterres warned that 70% of the global workforce—over 2.4 billion people—is at substantial risk of experiencing extreme heat, and the situation is especially dire for workers in Africa and the Middle East. He called for strong laws to protect workers, which some countries are enacting. The Biden administration recently moved to set the first national workplace heat safety protections in the U.S.
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Labour Ditches Tory Plan to Oppose ICC Request for Netanyahu Arrest Warrant
Now the United Kingdom's government must "stop selling Israel weapons," said one observer.
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The United Kingdom's newly elected Labour government abandoned plans by its Tory predecessor to challenge the International Criminal Court's May application for arrest warrants against Israeli Prime Minister Benjamin Netanyahu and Defense Minister Yoav Gallant.
Under Conservative leadership, the U.K. joined the U.S., Germany, and other Israel allies in condemning the ICC prosecutor's application for arrest warrants against the top Israeli officials for alleged war crimes in Gaza, including "starvation of civilians as a method of warfare" and "extermination."
The ICC prosecutor also applied for arrest warrants against Hamas leaders over atrocities committed in Israel on October 7.
As The Financial Timesreported, U.K. Prime Minister Keir Starmer "had until Friday to decide whether to make legal arguments to support questions raised by the previous Conservative government over the ICC's jurisdiction to issue warrants against Netanyahu and his defense minister."
A spokesperson for the Labour government said it would "not be pursuing this in line with our long-standing position" that "it's a matter for the courts to decide."
"Well done to the millions of people across the country who have made it clear that they refuse to be complicit in war crimes."
Humanitarians applauded the government's decision. Rohan Talbot, director of advocacy and campaigns at Medical Aid for Palestinians, called Tory opposition to the proposed arrest warrants "a disgraceful attempt to delay justice."
"I hope the new government will now throw its full support behind the court and uphold any warrants issued," Talbot added.
Trita Parsi, executive vice president of the Quincy Institute for Responsible Statecraft, also welcomed the move and urged the government to "stop selling Israel weapons." Between October 7 and May 31, the U.K. government issued more than 100 arms export licenses to Israel, according to official figures reported by The Guardian.
Reutersreported earlier this week that in documents released Tuesday, "judges granted permission to 18 states including the U.S., Germany, and South Africa to file written submissions to the ICC about its proposed arrest warrants for Netanyahu, Gallant, and Hamas leaders.
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Former Labour Leader Jeremy Corbyn, who won reelection to his Islington North seat as an Independent following his expulsion from the Labour Party, called the Starmer government's decision to ditch the Tories' opposition to the ICC arrest warrant requests "an important first step in respecting the universal application of international law."
"Well done to the millions of people across the country who have made it clear that they refuse to be complicit in war crimes," Corbyn added. "We will continue to demand an end to the massacre in Gaza, an end to all arms sales to Israel, and an end to the occupation of Palestine."
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