Here's a disturbing story:"The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.Here's the relevant section of the Internal Revenue Code. It provides that "The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section and section 383". I am not a lawyer, still less a tax lawyer, but offhand, I would not have thought that rescinding a law counts as promulgating a regulation necessary or appropriate to carry out its purposes. And if it doesn't, it's not clear where Secretary Paulson gets the authority to give banks a twelve-figure tax break.
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.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." (...)
We handed Congress and our President-Elect the paddle. They're going to have a fuck of a lot of spanking to do.