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Dems Tell Treasury To Back Off Tax Loophole

In the midst of the bailout debate, the Treasury Department quietly opened a tax loophole that allowed banks to avoid billions in tax liability. Some Democrats as well as outside tax experts deemed the loophole to be simply illegal, but many declined to make much of a fuss about it for fear of tanking the economy. The loophole was first reported by the Washington Post on November 10.

Banks are not pushing an expansion of that loophole and Democrats are pushing back. Nine members of the Ways and Means Committee today called on Treasury Secretary Hank Paulson to reject the expansion of the loophole, though stopped short of calling for it to be closed entirely.

“We strongly believe that you have already overstepped your authority in issuing the original guidance and urge you not to compound this mistake by further widening this illegal loophole," reads the letter. “At a time when we should be working together to identify and limit tax loopholes -- not creating and then expanding them--this backdoor bailout is precisely the wrong approach.”

Committee chairman Charles Rangel (D-N.Y.) is not among the signatories. The letter after the jump...
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