Freddie Mac 2006 Federal Taxes: They Cut Annual Federal Tax Bill by $475 Million; Paid ZERO Taxes, Instead Got a $108 Million Federal Tax Break

This is the second article on effective tax rates for Fannie Mae and Freddie Mac (both government sponsored enterprises –“GSE’s”). The first article focused on Fannie Mae, this one focuses on Freddie Mac. Fannie Mae’s and Freddie Mac’s government charters exempt them from state or local income taxes, but not federal taxes.

Freddie Mac , stock symbol FRE, has not filed 10k financial statements with the SEC. In lieu of those statements Fannie Mae posts financial statements on their website, including multiyear financial statements for three years in MS Excel format HERE.

2006 vs. 2005 Summary: Compared to 2005, net income before taxes declined by $453 million. However, the $475 Million decline in federal taxes was MORE than enough to offset that decline, resulting in a year to year increase in net income after taxes of $22 Million. Freddie’s effective tax rate on net income before taxes declined from 14.36% in 2005 to a NEGATIVE 5.14% in 2006.

2006:. Freddie Mac paid NO federal taxes in 2006 on net income before taxes of $2.13 Billion. Instead of a federal tax liability Freddie’s financials reflect a $108 Million increase in net income after adding federal taxes. (Like Fannie this is after adjustment for federal tax credits, most notably Federal Low Income Housing Tax Credits). Their effective federal tax rate for 2006 was thus a negative 5.14%. This rate was far below their 26.37% five year average rate, AND even farther below the 2006 S & P 500’s effective tax rate of 29.85% reported by Reuters HERE

2005: Freddie reported net income before taxes of $2.556 Billion and paid $367 Million in federal taxes. That’s an effective tax rate of 14.36%