Was the Lobbying on Tax Bill Worth the Effort? Banks Literally Paid Millions to Influence Peddlers - Will Pay Billions in New Taxes

By Naylor, Bartltett | American Banker, August 18, 1986 | Go to article overview

Was the Lobbying on Tax Bill Worth the Effort? Banks Literally Paid Millions to Influence Peddlers - Will Pay Billions in New Taxes


Naylor, Bartltett, American Banker


Was the Lobbying on Tax Bill Worth the Effort?

Banks Literally Paid Millions to Influence Peddlers--Will Pay Billions in New Taxes

When the banking industry pays its tab for lobbying on the tax bill, there will at least be a point of relief. While literally millions were spent retaining Washington's influence peddlers, there will not be many bonuses paid for success.

Banks and thrifts are taking a whipping. Collectively, the industry will pay more than $10 billion in new taxes over the next five years. Many bankers expect a 10% drain on earnings next year alone. Entire divisions may have to be restructured, some scrapped.

It's not as if bankers didn't put up a fight. The bank-client lists of major Washington law-cum-lobbying firms are long. Corman Law Offices, a two-person shop headed by former Rep. James Corman, who served on the House Ways and Means Committee, counts a dozen financial firms, from the General Electric Credit Corp. to the First National Bank of Boston.

John E. "Buck' Chapoton, a former Treasury official who is now a lobbyist with Vinson & Elkins, even negotiated a contingency fee if he could successfully protect key bank tax benefits.

Congressional lobbying records are incomplete and lawyers are tight-lipped about their charges. However, if it is assumed that the 50 largest banks and thrifts each retained a Washington law firm to help lobby the bill at $50,000 each, that would be $5 million. That's on top of direct political contributions and the budgets of industry trade groups.

What Went Wrong?

Where did the banks and their lobbyists go wrong?

Clearly, tax reform, as proposed by President Reagan, was aimed from the beginning at ending deductions and transferring some of the revenue burden from individuals to corporations.

"We went into this thing determined to make sure that all corporations that earn money pay their fair share of tax on those earnings,' says Sen. Robert Packwood, R-Ore., chairman of the Senate Finance Committee.

Tax provisions that benefit banks were among scores crushed by the reform steamroller.

Until now, banks have not paid high taxes.

Until now, banks have not paid high taxes. According to studies by Robert McIntyre of Citizens for Tax Justice, the effective tax rate on the industry is less than 5%. The McIntyre List of profitable firms that pay little to no tax is littered with banks.

Bankers and their lobbyists typically rephrase this: There is the "perception' that banks do not pay their share of taxes, says Mr. Chapoton, whose clients include the Bank of America, Chemical Bank, Citibank, and Texas Commerce Bank.

Perception or reality, there was little sympathy for banks on the tax-writing panels of the House and Senate.

The House tax bill approved last October stripped large banks, defined as those with more than $500 million in assets, of the cherished deduction for loan-loss reserves. Loan-loss reserves for thrifts also were trimmed, as were benefits for acquiring a failed institution. The House also eliminated the deduction for carrying costs of tax-free bonds. It proposed new taxes on foreign lending.

Hurting Banks Not an Objective

Initially, the Senate voted to continue defended these provisions. But in the first weeks of the Senate-House compromise conference, Senators agreed to most of the House's provisions.

Members of the Senate-House conference committee said repeatedly that they did not want to hurt the banking industry. "We don't want to drive any banks into desperation or bankruptcy,' said Mr. Packwood.

Some day, however, that these were crocodile tears. According to one theory, lawmakers were taking revenge for the bitter battle over a withholding tax three years ago. In 1983, Congress approved a withholding tax on interest-bearing accounts. …

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