How Goldman Sachs Speculates and Avoids Tax

The National People's Action group has prepared an interesting and informative report by Matthew Skomarovsky and Kevin Connor on how the big banks, including Goldman Sachs, manipulate the payment of their taxes so that that public revenues are starved of their needed sustenance. The information is gleaned from the annual reports of the various banks analyzed. It brings home sharply just why the states are in such bad shape with debt and deficits and how some states are now attacking, not the banks that caused the recession, but the people who pay taxes, belong to unions and suffer under the financial crisis caused by the banks.

I have chosen to excerpt those parts of the report that pertain to Goldman Sachs. The whole report is worth reading. It has a number of charts showing, for example, Big Bank Earnings and Federal Taxes; Big Bank Earnings and State Taxes; Big Bank Subsidiaries in Foreign Countries and Tax Havens. etc.

Big Bank Tax Drain

How Wall Street Speculation and Tax Avoidance are Starving Public Revenues
A Public Accountability Initiative report, prepared for National People's Action
by Matthew Skomarovsky and Kevin Connor
March 2011

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Executive Summary

Wall Street banks caused the economic crisis that has left millions unemployed, foreclosed on, and without prospects in the worst economy since the Great Depression. This crisis has, in turn, caused massive tax revenue shortfalls for the federal government and for state governments across the country: nearly $300 billion combined for 50 states in the years since the crisis began. To deal with these budget woes, politicians are cutting public spending: laying off teachers, attacking public sector workers, raiding pensions, closing hospitals, and eliminating essential services for children, veterans, and the elderly. Raising revenue from the wealthy, bailed-out banks that caused the crisis would be a far more sensible way to address these budget woes. This report analyzes data from the latest financial filings by the six big banks – Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley – to expose the ways in which they continue to avoid taxes and contribute to tax revenue shortfalls, rather than pay for an economic recovery that will put people to work, keep people in their homes, and preserve the safety net – for people, not corporations. (page 3)

from the section on Key Findings

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Six banks – Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley together paid income tax at an approximate rate of 11% of their pre-tax US earnings in 2009 and 2010. Had they paid at 35%, what they are legally mandated to pay, the federal government would have received an additional $13 billion in tax revenue. This would cover more than two years of salaries for the 132,000 teacher jobs lost since the economic crisis began in 2008. (page 3)

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Bank of America operates 371 tax-sheltered subsidiaries, more than any other big bank studied, and 204 subsidiaries in the Cayman Islands alone, according to its latest regulatory filings. 75% of Goldman Sachs’s foreign subsidiaries are incorporated in offshore tax havens. (page 4)

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An epidemic of foreclosures by the biggest banks have cost local governments in California an estimated $2-14 billion. A recent analysis showed that interest rate swaps sold to California by Goldman Sachs, JP Morgan Chase, and Bank of America have cost the state $1.5 billion dollars since 2008.4 (page 6)

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from the section II Big Bank Income Tax Avoidance

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A survey of federal, state, and foreign taxes paid over the past decade, as reported in financial statements, indicates six Too Big To Fail banks – Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, Goldman Sachs, and Morgan Stanley – have paid tens of billions less in corporate income taxes than the federal statutory rate of 35%.12 Excluding Citigroup’s three years of deep losses, these six bailed-out banks pay roughly the same federal tax rate on their US profits as kindergarten teachers pay on their salaries, not even counting the banks’ sizable earnings hidden from taxation in hundreds of offshore subsidiaries. (page 8)

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After taking billions in bailout funds from the US government in 2008, financialstatements for Citigroup and Goldman Sachs suggest that the banks did not pay a penny of federal taxes for 2008, and instead report having received net tax refunds of $4.6 billion and $278 million respectively from the federal government. (page 9)

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Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, Goldman Sachs, and Morgan Stanley reported roughly $382 billion in domestic earnings over the past ten years, including some heavy recent losses from the financial crisis. During this period, these banks paid $116 billion in federal taxes and $20 billion in state taxes, about 30.3% and 5.2% of their US income, respectively.24 (page 10)

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The New York Times reported in December that Wall Street banks like Goldman Sachs were “nervously eyeing the calendar” as Congress debated the tax cuts – they were considering whether to pay year-end bonuses before the new year in order to avoid the tax increase. The Times estimated that letting the Bush tax cuts lapse would cost a banker earning a $1 million bonus $40,000 to $50,000. (page 18)

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Read the entire report here