Former members of a congressional panel that oversaw bailouts during the financial crisis blasted the Treasury Department on Monday for quietly granting a tax break worth billions to insurance giant American International Group.
The tax break amounts to a "stealth bailout" on top of the $182 billion that AIG received from the government, and it unfairly helps AIG, its shareholders and executives, former oversight panel chair Elizabeth Warren and others said.
Warren, who also is a consumer advocate and Democratic candidate for U.S. Senate from Massachusetts, told reporters that tax breaks accounted for 90 percent of AIG profits last quarter.
"We think it's time for Congress to end the special tax break," she said.
Companies sometimes defer losses and use them to reduce the tax burden in future years. Companies that change ownership usually face strict limits on how much of a loss they can defer. But the Treasury Department granted AIG an exemption, handing the company $17.7 billion in profit, the former panel members said.
AIG received the biggest bailout of any company during the 2008 crisis. The company had sold insurance-like contracts that were supposed to pay out if certain mortgage-backed investments went bust.
When the investments tanked, AIG couldn't afford to pay the companies that had purchased the contracts. The government bailed it out so that it could pay them and prevent a market panic over the potential losses.
Damon Silvers, former vice chairman of the oversight panel, said the tax break unfairly benefits private AIG stockholders, including executives who were paid in stock options, at the expense of taxpayers.
"By doing it this way, substantial amounts of money leaked out to the benefit of private parties who really should not be benefiting from public policy in this way," Silvers said. He said the waiver gives AIG an unfair competitive advantage.
A Treasury Department spokesman referred to a blog post that says applying the rule "made no sense" in the context of the financial crisis.
The rule was intended to stop profitable companies from lowering their own tax bills by buying unprofitable ones, the blog post argues. The government did not acquire AIG and others to take advantage of their past losses, it says.
AIG spokesman Mark Herr said the company is relying on settled tax law that allows companies to offset taxable income with past losses.
AIG has repaid taxpayers more than $45 billion so far "and is committed to taking all possible steps so that American taxpayers can continue to recoup their investment in AIG at a profit," Herr said in a statement.
Also signing the letter were Mark McWatters and Kenneth Troske, who were appointed to the panel by Republican congressional leaders.
The oversight panel disbanded last April, as was required under the bailout law.