The Shock Doctrine Meets Tax Law
Concurring Opinions:
Naomi Klein could have predicted it. As panic over the financial crisis set in, the US Treasury department put into action a “two-decade effort by conservative economists and Republican administration officials” to eviscerate a limit on tax shelters.
In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention. But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion. . . .
Until the financial meltdown, its opponents thought it would be nearly impossible to revamp [Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers] because this would look like a corporate giveaway, according to lobbyists. . . . [According to other experts,] “It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides. . . [But] “[w]e’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”
Lee A. Sheppard, a tax attorney…