Corporate America's $33 Billion Tax Refund

By Jacob Goldstein
NPR
Mar. 25, 2010

JP Morgan gets $1.4billion but you'll get taxed to hell if you dare to go tanning.JPMorgan Chase is looking to benefit from a $1.4 billion tax refund, the WSJ reports.

The money is part of a bigger refund due to Washington Mutual, which failed during the crisis; JPMorgan is in the mix because it took over WaMu's banking operations. The WSJ has all the details on the fight over the money.

But the broader context here is pretty interesting; the money at stake is a small piece of a corporate tax refund that will cost the government an estimated $33 billion this year.

The refund was part of a stimulus bill that passed last year. (Not the big stimulus bill that passed early in the year, but a smaller bill that passed in November.)

The bill allowed companies to carry back losses they incurred during 2008 and 2009 against profits they had made in the previous five years.

For example, consider a company that was profitable in 2004, 2005 and 2006, and paid taxes on those profits. If that company lost money in 2008 and 2009, it could subtract those losses from the profits it made in 2004-2006 -- and get a refund on the taxes it paid during the years it was profitable. (Existing law allowed companies to do this sort of thing, but only going back two years, rather than five years.)

This isn't a particularly efficient way to stimulate the economy -- every tax dollar refunded to a corporation through this mechanism results in somewhere between zero and 40 cents of GDP growth, according to a CBO report issued last year.












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