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Joe Guzzardi President Obama has a weapon to attack Wall Street fat cats: the IRS

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Posted: Saturday, July 31, 2010 12:00 am

In his recent report, Kenneth R. Feinberg, the Obama administration's pay czar, revealed that 17 financial companies paid out 2009 bonuses totaling $1.58 billion. These banks had accepted billions in taxpayer aid, supposedly to keep them afloat since their failure would cause catastrophic global disaster — or so we were told.

Feinberg named all the familiar names, including Goldman Sachs and JPMorgan Chase.

Things are going swimmingly for Goldman Sachs and JPMorgan Chase. The former is on pace to hand out an average of $544,000 per worker in salary and bonuses; the latter, $425,000. Many will earn several times those sums.

You will recall that last year Obama called the Wall Street bonuses "shameful," "the height of irresponsibility," and demanded that the banks "show some restraint and show some discipline and show some sense of responsibility."

Now Obama's tune is different. Through Feinberg, Obama claims that he has limited power, other than jawboning, to recapture any of the ill-gotten gains from the Park Avenue elite. Since eleven of the 17 banks have repaid their bailout loans, excessive payouts to their operatives are out of the White House's control, so the story goes.

Feinberg proposes that banks voluntarily adopt a "brake provision" that would allow their boards to nullify or reduce bonus payouts.

Who comes up with these comical ideas? And good luck in enforcing them.

All 17 financial institutions told Feinberg, presumably with a straight face, that they will "consider" enacting such a policy. But, surprise, surprise, none has done so yet.

And why should they? If the second half of 2010 plays out like the first half, Wall Street bonuses will be equal to 2007 levels, when the economic crisis, precipitated by the same tycoons, unfolded.

What we have is a small group of Wall Street bankers laughing at Obama and making a fool of him.

When the Obama administration says that it's powerless to intercede to recoup billions, that may be technically true. But there are few cases where the United States president is powerless. This isn't one of them.

Down through history, presidents have occasionally resorted to a useful and universally feared federal agency to exact revenge: the Internal Revenue Service.

The IRS is supposed to be above petty partisan politics. And it may be. But when the word comes down from the White House that certain individuals who have displeased the president might be selected for tax scrutiny, then what's the agency to do?

Democrats and Republican administrations have deployed the IRS to play serious hardball against their opponents.

During Franklin Delano Roosevelt's first term, Andrew Mellon became his primary target for investigation. Mellon, a former conservative Treasury Secretary under Presidents Coolidge, Harding and Hoover, opposed Roosevelt's economic philosophy. Mellon was an outspoken but popular critic of Roosevelt's expansive federal spending programs to end the Great Depression.

Through his longtime friend and then-Treasury Secretary, Henry Morgenthau, Roosevelt went after Mellon with a vengeance. Morgenthau's instructions to Attorney General Homer Cummings were to be as tough as possible on Mellon on tax evasion charges. In the end, Mellon escaped prosecution.

In the 1970s, when Richard Nixon drew up his "enemies list," he hoped that the IRS would put them through grueling audits. Nixon's original list of 20 enemies grew to hundreds.

White House Counsel John Dean drafted a memorandum on behalf of Nixon titled "Dealing With Our Enemies."

In the memo, Dean explained that, "This memorandum addresses the matter of how we can maximize the fact of our incumbency in dealing with persons known to be active in their opposition to our administration. Stated a bit more bluntly — how we can use the available federal machinery to screw our political enemies." Dean's list included 576 names of personnel working for Nixon's opponent George McGovern which he submitted to the IRS.

Using the IRS as a political hammer is presidential abuse of power. But some analysts think that presidents routinely overstep their authority.

Summoning the IRS would have to be done discreetly. In the end, the IRS could always claim circumstance.

Imagine the coincidence, the agency might say. You've publicly embarrassed the president and now your 2007, 2008 and 2009 federal income taxes are being audited!

Joe Guzzardi is among those "analysts" who think "presidents routinely overstep their authority." Contact him at

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