What's a few billion dollars among taxpayers?
Federal prosecutors and J.P. Morgan Chase are negotiating details of an impending $13 billion settlement for the institution's role in the subprime mortgage crisis that triggered the Great Recession and came close to toppling the world economy.
The case has been hailed as a change in direction for the federal government, which finally seems to have turned to bringing institutions - if not individual executives - to some level of accountability for their dangerous conduct.
But, not so fast. Federal tax law allows companies to claim deductions on penalties and fines they pay to the federal government. According to several U.S. senators who have attempted to intervene in the case, J.P. Morgan could transfer to taxpayers as much as about 30 percent of its liability in the settlement - more than $4 billion.
Sens. Jack Reed, Rhode Island Democrat, and Charles Grassley, an Iowa Republican, have introduced a bill to preclude the tax deduction of penalties and fines paid to the federal government.
A fundamental purpose of such penalties is to deter similar conduct by others. Allowing taxpayers to be saddled with large percentages of those penalties is an incentive for bad conduct rather than a deterrent.
Since the deal with J.P. Morgan Chase is not yet finished, the Department of Justice should make clear that it will not agree to any settlement structure that allows tax deductions on the bank's payments to the government.
Meanwhile, Congress should pass the bill to ensure that taxpayers aren't on the hook for future settlements.