Tuesday, December 22, 2009;
The Dec. 17 article on the impact of the government's upcoming sale of its Citigroup shares mischaracterized the tax law and its application ["U.S. postpones selling its stake in Citigroup as share price slumps," Economy & Business]. The law was designed to prevent a private company from evading taxes by buying a company with significant tax losses and using those losses to lower its own tax rate. The law is meant to stop Company A (profitable buyer) from acquiring Company B (unprofitable target) to lower the taxes on Company A's profits by deducting Company B's losses.
There are two reasons why the law does not apply here. One, governments don't pay taxes and cannot evade the obligation to pay taxes. Second, the government made only a short-term investment designed to stabilize the financial system, an investment that is now ready to be wound down. There is no acquirer looking to shield profits from taxes -- the abuse the law was designed to prevent.
Under tax law, every business that loses money can offset those losses against income within well-defined limits.
There is no compelling reason why Citi should be treated differently simply because the government intervened. Doing so would punish taxpayers who invested in Citi by destroying value in the company. And it's nonsensical to apply a law designed to prevent tax evasion to the government, which doesn't pay taxes.
The real story here is simple: The government did not apply to itself a law meant for private companies.
Herb Allison, Washington
The writer is assistant secretary for financial stability at the Treasury Department.