Goldman Sachs Group, Inc., which received $10 billion in cash along with debt guarantees from the U.S. government as part of the $700-billion bank bailout in October, saw a dramatic reduction in its tax rate for 2008. In 2007, the firm paid 34.1 percent (or $6 billion), but in 2008, its tax rate will plummet to only 1 percent.

Goldman Sachs is only required to pay $14 million on $2.3 billion in profit after paying $10.9 billion in employee compensation and benefits this year.

Goldman Sachs Will Only Pay 1% In Taxes This Year
Goldman Sachs Will Only Pay 1% In Taxes This Year

In the same report, the firm announced its first quarterly loss since going public in 1999, another sign of sliding investor confidence.

The firm says that its tax rate was reduced because it was able to take on more tax credits and because of “changes in geographic earnings mix.”

The tax credits reasoning makes intuitive sense, but it is likely that the majority of the tax rate reduction comes from the “changes in geographic earnings mix,” which refers to the firm moving money to other countries with lower tax rates.

By moving funds out of the United States, Goldman Sachs avoided having to pay U.S. taxes on almost all their earnings. There is no word yet on whether other companies or banks have done the same as Goldman.

The firm has benefited from government handouts this year that greatly exceed the amount that they pay in taxes. The handouts, which are funded by taxpayer dollars, may now be called into question by befuddled politicians.

“This problem is larger than Goldman Sachs,” Doggett said. “With the right hand out begging for bailout money, the left is hiding it offshore.”

For the first nine months of this fiscal year, Goldman Sachs had reported that they would pay taxes at a 25.1% rate, and analysts had predicted that they would pay 28% in taxes for the fourth quarter. These rates, though lower than last year’s rates, are still dramatically higher that the 1% that the firm will be paying. With all of the help that Goldman Sachs and other banks have received from the federal government, there may be public backlash and some may call for a formal investigation into whether Goldman’s actions were legal and whether other banks were practicing similar behavior.