Looks like Fred Barnes isn’t the only high-profile conservative columnist still arguing that climate change doesn’t really exist.
Over the weekend, the Washington Post‘s George Will, got in on the act. And it took us about ten minutes — longer, it appears, than the Post‘s editors spent — to figure out that Will, like Barnes, was essentially making stuff up.
Both of Will’s major “data points” fall apart after a moment’s scrutiny.
Here’s the first:
According to the University of Illinois’ Arctic Climate Research Center, global sea ice levels now equal those of 1979.
But within hours of Will’s column appearing, the ACRC had posted the following statement on its website:
We do not know where George Will is getting his information, but our data shows that on February 15, 1979, global sea ice area was 16.79 million sq. km and on February 15, 2009, global sea ice area was 15.45 million sq. km. Therefore, global sea ice levels are 1.34 million sq. km less in February 2009 than in February 1979. This decrease in sea ice area is roughly equal to the area of Texas, California, and Oklahoma combined.
It is disturbing that the Washington Post would publish such information without first checking the facts.
So, nevermind then.
As for Will’s second claim, he writes:
[A]ccording to the World Meteorological Organization, there has been no recorded global warming for more than a decade.
This one is a little more complicated. But only a little.
Will’s claim appears to come from a BBC News article from way back in April 2008, whose first version reported:
Global temperatures will drop slightly this year as a result of the cooling effect of the La Nina current in the Pacific, UN meteorologists have said.
The World Meteorological Organization’s secretary-general, Michel Jarraud, told the BBC it was likely that La Nina would continue into the summer.
This would mean global temperatures have not risen since 1998, prompting some to question climate change theory.
It’s true that temperatures haven’t risen since 1998, because that year was a particularly hot one. But as anyone with a high-school level grasp of statistics understands, you need to look at data over a broad period to get a realistic assessment of what’s going on. In fact, the WMO itself made that very point in an “information note” that confirmed that the organization believes global warming is continuing, and pointed out that the last decade has been the warmest on record.
The WMO wrote:
The long-term upward trend of global warming, mostly driven by greenhouse gas emissions, is continuing. Global temperatures in 2008 are expected to be above the long-term average. The decade from 1998 to 2007 has been the warmest on record, and the global average surface temperature has risen by 0.74C since the beginning of the 20th Century. […] “For detecting climate change you should not look at any particular year, but instead examine the trends over a sufficiently long period of time. The current trend of temperature globally is very much indicative of warming,” World Meteorological Organization Secretary-General, Mr Michel Jarraud said in response to media inquiries on current temperature “anomalies”.
Indeed, the BBC soon changed the third paragraph of its report to read:
But this year’s temperatures would still be way above the average – and we would soon exceed the record year of 1998 because of global warming induced by greenhouse gases.
That changed prompted climate change deniers to see a nefarious conspiracy to hide the truth. But given that additional information from the WMO, it’s pretty clear that the revised version better reflects reality.
Will, of course, doesn’t appear to have been interested in any of this. He saw (perhaps via Rush Limbaugh?) a report that appeared to confirm what he believes … and straight into the Washington Post it went. Neither did Will’s editors at thePost seem to care enough about not misinforming their readers to take ten minutes to delve into any of this.
An assistant for Will said the columnist might be able to return TPMmuckraker’s call about the column this afternoon. Fred Hiatt, the Post‘s editorial page editor told TPMmuckraker he’d try to respond to questions about the editing process later today. We’ll update this post if we hear back.
Thanks to reader C.P. for the catch.
David Rivkin and Lee Casey are right-wing lawyers and former Reagan DOJ officials who, over the last eight years, have been extremely prolific in jointly defending Bush/Cheney theories of executive power. Today, they have one of their standard Op-Eds, this time in The Washington Post, demanding that there be no investigations or prosecutions of Bush officials. Most of the arguments they advance are the standard platitudes now composing Beltway conventional wisdom on this matter. But there is one aspect of their advocacy that is somewhat remarkable and worth noting.
Rifkin and Casey have long been vigorous opponents of the legitimacy of international tribunals to adjudicate crimes committed by American officials. In February, 2007, they wrote an Op-Ed in the Post bitterly criticizing Italian officials for indicting 25 CIA agents who had literally kidnapped a Muslim cleric from Italy and “rendered” him from Milan to Egypt. In that Op-Ed, the Bush-defending duo argued that Italy had no right to prosecute these agents (h/t reader tc):
An Italian court announced this month that it is moving forward with the indictment and trial of 25 CIA agents charged with kidnapping a radical Muslim cleric. These proceedings may well violate international law, but the case serves as a wake-up call to the United States . . . .
[T]he United States must still vigorously resist the prosecution of its indicted agents. . . . [I]t is up to American, not Italian, authorities to determine whether any offense was committed in the capture and rendition of Nasr.
Unfortunately, the effort to prosecute these American agents is only one instance of a growing problem. Efforts to use domestic and international legal systems to intimidate U.S. officials are proliferating, especially in Europe.Cases are pending in Germany against other CIA agents and former defense secretary Donald Rumsfeld — all because of controversial aspects of the war on terrorism. These follow Belgium’s misguided effort to pursue “universal jurisdiction” claims for alleged violations of international law, which also resulted in complaints against American officials including Vice President Cheney and former secretary of state Colin Powell. That law was amended, but the overall problem is unlikely to go away. The initiation of judicial proceedings against individual Americans is too attractive a means of striking at the United States — and one often not subject to control by the relevant foreign government.
Accordingly, Congress should make it a crime to initiate or maintain a prosecution against American officials if the proceeding itself otherwise violates accepted international legal norms.
So it’s up to the U.S. — not any foreign tribunals — to prosecute war crimes and other felonies committed by American officials (for reasons that, at least in part, I find persuasive). In fact, they argue, international prosecutions are so illegitimate that such proceedings themselves should be declared by the U.S. to be crimes. Indeed, like most of their political comrades, Rivkin and Casey have consistently argued that U.S. jurisdiction over alleged violations of international law and U.S. treaties by U.S. citizens — including our leaders — is exclusive.
They made the same argument when opposing U.S. ratification of the enabling statute of the International Criminal Court (.pdf), arguing that “[t]he question is whether [international] law can, or should, be enforced outside national legal systems that have generally functioned well.” Their answer, of course, is that, when it comes to Americans, international law obligations cannot and shouldn’t be enforced anywhere but America:
There are many problems with the Rome Treaty. The most immediate one, for Americans, is the danger of its being used as a political instrument against us. But the most profound flaw is a philosophical one: The concept of “international” justice underpinning the ICC project is more apparent than real. . . .
The prosecution of political leaders is inherently political, and there are at least two sides to every political conflict. . . . From America’s perspective, the greatest practical danger of joining the ICC regime would be that the court, driven by those who may resent American global preeminence, could seek to restrain the use of U.S. military power through prosecutions of U.S. leaders.
They then went on to call for the Bush administration to vocally and decisively reject the legitimacy of the ICC so that the whole edifice would collapse. This is because American leaders should not be subjected to prosecution in foreign countries for their crimes — only in America.
Yet what do these two argue today? That domestic investigations and prosecutions — by American tribunals and American courts — are alsoinappropriate, illegitimate and destructive. Though they acknowledge that “the Justice Department is capable of considering whether any criminal charges are appropriate,” they nonetheless insist that this must not be done:
For his part, President Obama has reacted coolly to calls to investigate Bush officials. Obama is right to be skeptical; this is a profoundly bad idea — for policy and, depending on how such a commission were organized and operated, for legal and constitutional reasons. . . .
Attempting to prosecute political opponents at home or facilitating their prosecution abroad, however much one disagrees with their policy choices while in office, is like pouring acid into our democratic machinery. As the history of the late, unlamented independent counsel statute taught, once a Pandora’s box is opened, its contents can wreak havoc equally across the political and party spectrum. . . .
Obama and the Democratic Congress are entitled to revise and reject any or all of the Bush administration’s policies. But no one is entitled to hound political opponents with criminal prosecution, whether directly or through the device of a commission, and those who support such efforts now may someday regret the precedent it sets.
So no international tribunals or foreign countries have any power to investigate or prosecute American officials for war crimes (even when those war crimes are against citizens of those countries and/or committed within their borders). And, American political officials must also not be prosecuted inside the U.S., by American courts. “Nobody is entitled” to do that either, because “attempting to prosecute political opponents at home or facilitating their prosecution abroad is like pouring acid into our democratic machinery.”
The implication of their argument — which is now the conventional Beltway view — is too obvious to require much elaboration. If our political leaders can’t be held accountable for their war crimes and other serious felonies in foreign countries or international tribunals, and must never be held accountable in the U.S. either (because to do so is to “pour acid into our democratic machinery”), then it means that American political officials (in contrast to mostother leaders) are completely and explicitly exempt from, placed above, the rule of law. That conclusion is compelled from their premises.
At least to me, it’s just endlessly perplexing how anyone — let alone our political class in unison — could actually endorse such absolute lawlessness for political leaders. Didn’t our opinion-making elites learn in eight grade that the alternative to a “nation of laws” was a “nation of men” — i.e., the definition of tyranny? Those are the only two choices. It’s just so basic.
Apparently, though, this is all fine with our political establishment, since none of this is new. Here’s what Iran-contra prosecutor (and life-long Republican official) Lawrence Walsh said in 1992 after George H.W. Bush pardoned Casper Weinberger days before his trial was set to begin:
President Bush’s pardon of Caspar Weinberger and other Iran-contra defendants undermines the principle that no man is above the law. It demonstrates that powerful people with powerful allies can commit serious crimes in high office — deliberately abusing the public trust without consequence.
Weinberger, who faced four felony charges, deserved to be tried by a jury of citizens. Although it is the President’s prerogative to grant pardons, it is every American’s right that the criminal justice system be administered fairly, regardless of a person’s rank and connections.
The Iran-contra cover-up, which has continued for more than six years, has now been completed with the pardon of Caspar Weinberger. . . . Weinberger’s early and deliberate decision to conceal and withhold extensive contemporaneous notes of the Iran-contra matter radically altered the official investigations and possibly forestalled timely impeachment proceedings against President Reagan and other officials. Weinberger’s notes contain evidence of a conspiracy among the highest-ranking Reagan Administration officials to lie to Congress and the American public. . . .
In light of President Bush’s own misconduct, we are gravely concerned about his decision to pardon others who lied to Congress and obstructed official investigations.
Does anyone deny that we are exactly the country that Walsh described: one where “powerful people with powerful allies can commit serious crimes in high office — deliberately abusing the public trust without consequence”? And what rational person could think that’s a desirable state of affairs that ought not only be preserved — but fortified still further– as we move now to immunize Bush 43 officials for their far more serious and disgraceful crimes? As the Rifkin/Casey oeuvre demonstrates, we’ve created a zone of lawlessness around our highest political leaders and either refuse to acknowledge that we’ve done that or, worse, have decided that we don’t really mind.
“The case against Clevinger was open and shut. The only thing missing was something to charge him with.”
- Joseph Heller, Catch-22
Barack Obama will have spent his first several days in office issuing a series of executive orders which, some quibbling and important caveats and reservations aside, meet or actually exceed even the most optimistic expectations of civil libertarians for what he could or would do quickly — everything from ordering the closing of Guantanamo to suspending military commissions to compelling CIA interrogators to adhere to the Army Field Manual to banning CIA “black sites” and, perhaps most encouragingly (in my view): severely restricting his own power and the power of former Presidents to withhold documents and other information on the basis of secrecy, which was the prime corrosive agent, the main enabler, of the Bush era. As a result, establishment and right-wing figures who have been assuring everyone (most of all themselves) that Obama, in these areas, would scorn “the Left” (meaning: those who believe in Constitutional safeguards) and would continue most of Bush’s “counter-Terrorism” policies are growing increasingly nervous about this flurry of unexpected Bush-repudiating activity.
The Washington Post‘s Fred Hiatt has an Editorial today purporting to praise what he claims is Obama’s “appropriate prudence in taking things slowly — at least for now.” Hiatt further praises Obama for his intention to scrap the current military commissions system, because, as Hiatt puts it, “a deeply flawed and unjust legal process such as the one in place at Guantanamo is untenable.” Yet this is what Hiatt says about what should replace the Guantanamo military commissions system:
Mr. Obama should order trials in federal court when possible. For those for whom traditional prosecutions would not be feasible, he should ensure robust due process, whether in courts-martial or aversion of existing military commissions. If there are dangerous detainees who cannot be tried– a possibility that Mr. Obama has acknowledged — the president should consider creation of a specialized court, akin to the Foreign Intelligence Surveillance Court, in which such detainees would be guaranteed periodic review of their detentions by a federal judge empowered to order their release.
This paragraph, which more or less embodies the conventional wisdom about what should be done with Guantanamo detainees once that camp is closed, is about as ironic a claim as can be imagined. Just think about what Hiatt, masquerading (as always) as the defender of democracy and Western justice, is actually saying:
In the name of due process, we should give Guantanamo detainees a trial in our normal civilian courts, using our normal rules of justice –but only if we’re certain ahead of time that we can win and convict them. For those we’re not certain we can convict using our normal standards of due process (because the evidence against them is “tainted”), we should re-write the rules of justice and create a whole new tribunal (similar to the Guantanamo military commissions that Hiatt pretends to decry, which advocates, in Orwellian fashion, typically call “national security courts”) in order to make it easier for us to win against them and keep them incarcerated. And then, for those who we can’t convict even in the new, “looser” tribunals, we’ll just create a wholly separate, new, presumably secret tribunal that has the power to keep people detained indefinitely without having to prove that they violated any laws at all.
Rather obviously, if you afford due process safeguards only to those people you’re sure you can convict anyway, but then deny them at will to whomever you think can’t be convicted under the normal rules, that isn’t “due process.” That’s a transparent sham, a mockery of justice. You can’t have different due process standards and entirely different courts that you pick and choose from based on how many rights you think you can afford to extend and still be assured of a conviction (e.g.: “we’ll probably lose in a real court against this detainee because the prime evidence we have against him is a coerced confession, so let’s stick this one in a national security court where we can use the coerced confession and don’t have to extend other rights and safeguards that will get in our way, and thus be assured of winning”).
More obviously still, the U.S. will not, as Hiatt puts it, “end the discredited practices for handling foreign detainees that have blemished the United States’ reputation worldwide” if we simultaneously, as Hiatt advocates, create a new court that is empowered to keep accused Terrorists in cages indefinitely without having to give them a trial at all (i.e., a “preventive detention” scheme). If all we end up doing is re-creating the travesties of Guantanamo inside the U.S., we will not have taken a step forward. One could plausibly argue that replicating Guantanamo inside the U.S. will be to do the opposite.
This is why the understandable enthusiasm (which I definitely share) over Obama’s pleasantly unexpected commitment in the first few hours of his presidency to take politically difficult steps in the civil liberties and accountability realms should be tempered somewhat. There is going to be very concerted pressure exerted on him by establishment guardians such as Hiatt (and the Brookings Institution, Jack Goldsmith and friends), to say nothing of hard-line factions within the intelligence community and its various allies, for Obama to take subsequent steps that would eviscerate much of this progress, that render these initial rollbacks largely empty, symbolic gestures. Whether these steps, impressive as they are, will be symbolic measures designed to placate certain factions, or whether they represent a genuine commitment on Obama’s part, remains to be seen. Much of it will depend on how much political pressure is exerted and from what sides.
Obama deserves real praise for devoting the first few days of his presidency to these vital steps — and doing so without there being much of a political benefit and with some real political risk. That’s genuinely encouraging. But ongoing vigilance is necessary, to counter-balance the Fred Hiatts, Brookings Institutions and other national security state fanatics, to ensure that these initial steps aren’t undermined.
The Iranian businessman was looking for high-quality American electronics, but he had to act stealthily: The special parts he coveted were denied to Iranians, especially those seeking to make roadside bombs to kill U.S. troops in Iraq.
With a few e-mails, the problem was solved. A friendly Malaysian importer would buy the parts from a company in Linden, N.J., and forward them to Iran. All that was left was coming up with a fake name for the invoice. Perhaps a Malaysian engineering school? “Of course, you can use any other company as end-user that you think is better than this,” the Iranian businessman, Ahmad Rahzad, wrote in an e-mail dated March 8, 2007.
The ruse succeeded in delivering nine sensors called inclinometers to Iran, the first of several such shipments that year and the latest example of what U.S. officials and weapons experts describe as Iran’s skillful flouting of export laws intended to stop lethal technology from reaching the Islamic republic.
Despite multiple attempts by the Bush administration to halt illegal imports — including sanctions against several Dubai-based Iranian front companies in 2006 — the technology pipeline to Tehran is flowing at an even faster pace. In some cases, Iran simply opened new front companies and shifted its operations from Dubai to farther east in Asia, the officials said.
Iran in the past two years has acquired numerous banned items — including circuit boards, software and Global Positioning System devices — that are used to make sophisticated versions of the improvised explosive devices, or IEDs, that continue to kill U.S. troops in Iraq, according to documents released by the Justice Department and a new study by a Washington research institute. The deadly trade was briefly disrupted after the moves against Dubai companies in 2006, but it quickly resumed with a few changes in shipping routes and company names, the officials said.
“Without doubt, it is still going on,” said one former U.S. intelligence official who investigated Iran’s networks.
Bomb circuitry is only a small part of the global clandestine trade that continues to flourish, despite U.S. efforts to end it. A federal investigation in New York into whether banks helped customers skirt U.S. rules forbidding business with Iran and other countries turned up evidence of Iranian interests trying to buy tungsten and other materials used in the guidance systems of long-range missiles. As part of the investigation, a British bank agreed to forfeit $350 million.
While illegal trafficking in weapons technology has occurred for decades — most notably in the case of the nuclear smuggling ring operated by Pakistani scientist Abdul Qadeer Khan — the new documents suggest that recent trading is nearly all Internet-based and increasingly sophisticated.
Many of the schemes unknowingly involve U.S. companies that typically have no clue where their products are actually going, the records show.
“The schemes are so elaborate, even the most scrupulous companies can be deceived,” said David Albright, president of the Institute for Science and International Security (ISIS) and co-author of a forthcoming study of black markets for weapons components.
Albright said the deceptions can be even more elaborate when the target is nuclear technology. “That’s where the stakes are the highest,” he said. “If Iran is successful, it ends up not with an IED but with a nuclear weapon.”
Rare details about the illicit markets emerge in court records from the Justice Department’s investigation of Iran’s Dubai network, as well as in the ISIS study, which tracks four years of secret trading by Iranian and Pakistani front groups. The study includes copies of invoices and the contents of e-mails from companies looking to buy Western technology.
Iran, a veteran of such schemes, appears in the documents to be increasingly adept at using front companies, which pose as schools or private laboratories conducting business through seemingly legitimate Web sites, the Justice Department records show. If discovered — as happened with the Dubai-based Mayrow General Trading in 2006 — the businesses frequently reopen under different names in other locations.
According to the records, Mayrow was the hub of a procurement network that operated from early this decade until about 2006, chiefly in Dubai, which is part of the United Arab Emirates and a close U.S. ally. U.S. intelligence officials have long identified the small Persian Gulf kingdom as a center for shell companies seeking to buy weapons parts and technology for countries that cannot import them legally. Since 2006, Dubai has moved to close Mayrow and toughen export regulations.
Mayrow worked in tandem with three other companies that alternated placing orders with U.S. firms for electronic parts. All four companies had the same business address and same principal managers, yet on paper they appeared to be separate and legitimate trading companies seeking parts for a variety of industrial uses, Albright said in the ISIS report, titled “Iranian Entities Illicit Military Procurement Networks.” The report is due for release this week.
“The trading companies effectively created a wall between the Iranian entities and the U.S. suppliers, making it difficult for the U.S. suppliers to identify the true end-user of an item,” the report says.
The Mayrow network resulted in the acquisition of hundreds of sensitive parts from U.S. manufacturers in California, Florida, Georgia and New Jersey during a four-year period, according to a federal indictment returned by a Florida grand jury in September.
All the items were shipped from Dubai to Iran, where most appear to have been distributed among several manufacturers of IEDs. These bombs account for the majority of U.S. troop casualties in Iraq, as well as the deaths of thousands of civilians, police and troops in Iraq and Afghanistan. Examinations of unexploded bombs have confirmed the presence of circuit boards, timers and other parts of U.S. origin, federal officials confirm.
Mayrow’s ability to trade with Americans essentially ended in 2006 when the Commerce Department imposed extensive trade restrictions on the company and its known partners. Yet months after the sanctions went into effect, a similar network based in Malaysia began asking U.S. companies for the same kinds of technology, the Justice Department documents show. The orders were primarily from a firm that called itself Vast Solution and was headed by Majid Seif, an Iranian national. Seif was named in the federal indictment as a co-conspirator in an international plot to acquire components for Iranian-made IEDs.
By 2007, the Dubai-based operation had been almost entirely replaced by the Malaysian networks, the ISIS study found. Yet, while perhaps less conspicuous than before, the Dubai network probably continues to exist, though in a different form. Typically, the new front companies will not be discovered until long after crucial technology has left American shores aboard ships ultimately bound for Iran, Albright said.
“The current system of export controls doesn’t do enough to stop illicit trade before the item is shipped,” he said. “Having a law on the books is not the same as having a law enforced.”
By Amit R. Paley
Washington Post Staff Writer
Monday, November 10, 2008; A01
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.
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.”
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code — a provision that limited a kind of tax shelter arising in corporate mergers — came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. “This is part of our overall effort to provide relief,” he said.
The Treasury itself did not estimate how much the tax change would cost, DeSouza said.
A Tax Law ‘Shock’
The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury’s work seemed focused almost exclusively on the bailout.
“It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
More than a dozen tax lawyers interviewed for this story — including several representing banks that stand to reap billions from the change — said the Treasury had no authority to issue the notice.
Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”
Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.
Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.
But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.
“This has never been a good economic policy,” said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.
The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company’s losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.
During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 — issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll — criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury’s office of tax policy earlier this year.
Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.
“It’s really been the third rail of tax policy to touch 382,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.
‘The Wells Fargo Ruling’
As turmoil swept financial markets, banking officials stepped up their efforts to change the law.
Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country’s largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.
DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. “We received absolutely no requests from any bank or financial institution to do this,” he said.
Although the department’s action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed “the Wells Fargo Ruling,” could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.
Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.
Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens’s estimate was too high but declined to provide an alternate one; Santander declined to comment.
Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department’s top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.
Congress Looks for Answers
No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.
DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.
In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
“We’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”
Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. “Congress wants to help,” Grassley said. “We also have a responsibility to make sure power isn’t abused and that the sensibilities of Main Street aren’t left in the dust as Treasury works to inject remedies into the financial system.”
Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.
Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.
But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
“None of us wants to be blamed for ruining these mergers and creating a new Great Depression,” one said.
Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.
“It’s just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system,” said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”