Perhaps one of the least-covered elements of the auto industry restructuring has been the numerous tax advantages GM has earned as a government-owned automaker. Unlike most bankruptcies, GM was allowed to hold onto some $16b of net operating loss credits (tax-loss carry-forwards), which can be used to offset future tax bills. Typically, companies that restructure in bankruptcy lose existing carry-forwards as the price of wiping out debt, but because the government is invested in GM, it decided to allow old tax losses to flow into the new company even as debt was left behind. In the latest update on this story, The Wall Street Journal notes that some $18.9b of GM’s carry-forwards were from the old company, and that the firm has a whopping $45.4b in future tax savings. And because carry-forwards can be banked up to 20 years before they are spent, GM will have to make massive profits before it starts actually paying taxes to the federal government. The government’s position:
the profit-shielding tax credit makes the bailed-out companies more attractive to investors, and that the value of the benefit is greater than the lost tax payments, especially since the tax payments would not exist if the companies fail
Which is all well and good, but the reality is also that this practically doubles the taxpayers’ cost of bailing out GM. As a policy this makes sense for the reasons given (assuming the bailout was a foregone conclusion), but it would be nice if this “hidden charge” were at least noted on the bill.
Hey, Geniuses. All TARP recipients could carry forward losses for tax purposes. Of course, GM has to be villianized or it wouldn’t be a typical day on TTAC.
I don’t believe most of the TARP recipients went through bankruptcy, which is the point here.
“Typically, companies that restructure in bankruptcy lose existing carry-forwards as the price of wiping out debt…”
Just a thought.
Bunter
Buick, this webiste, you may not have noticed is The Truth About Cars- get it? cars. If I want to complain about banking bailouts I’ll go to The Truth About Banking. You understand why we talk about the GM bailout here? It’s because it is a automotive website. When you figure this out you may have something valid to contribute but until then read and learn.
+ 1 Buick61. The sin of omission can give away an editorial leanings. Just like TTAC spends many column inches making (valid) criticisms of the Ethanol subsidies and never utters a word about the massive amount of incentives and rebates that the oil industry receives.
Please remember that the GM that ran up all of those losses went through bankruptcy and is now known as Motors Liquidation Company. What everyone now refers to as GM is NOT the same company that had the losses. The real (old) GM was somehow able to pass its rights to carry forward losses (via the bankruptcy court) to another company that is now receiving tax advantages. This did NOT happen with other non-auto TARP recipients.
Is this the new kind of feudalism? The kings vassals didn’t have to pay any taxes either, as long as they provided knights and horses to defend king and country. What does GM bring back to the country for that tax exempt?
Jobs.
Whether you think that’s reasonable is up to you, but tax breaks for job creation is an old, old game.
Of course it’s a bit of a double edged sword as well…These tax breaks make the company worth more if an IPO ever happens, thus yielding more cash money to the gubment.
In fact, if GM would be 100% gubment owned (which it isn’t, but still) and you believe in a perfect market without transaction costs etc…I’m thinking the gubment would exactly gain the amount of cash at the IPO that they loose in lost tax revenue.
As for now I think they’re transferring some of that wealth to the other entities that now hold stock, but on the plus side, they do get money in the bank at the time of the IPO, instead of some future tax payment that may or may not actually happen that they now miss out on.
Think again, it will be lost money. Anyone who thinks that the bailout was a good idea needs to read this and thiink about it for a while. It wasn’t and never will be. Taxpayers are getting screwed again.
It’s definitely not $45 billion of lost money…Not even close. Since GM is now state owned this is for a good part a story of whether to decide to take money out of your left pocket to put it in your right pocket, or just leave it in your left pocket.
Every amount of money the gubment decides to take out of GM will decrease the value of GM and will be reflected in a drop of the share price and therefore the value that the gubments stake in GM is worth.
Simply put, IF these tax cuts would have a value of 45bn and the government would retract them (and claim their taxes) they would decrease the value of GM by 45bn and their own share by 60%*45bn.
So yes, it’s gonna cost the taxpayer money, but not $45bn like the article tries to make out.
“…the tax payments would not exist if the companies fail”
Had GM been dissolved, all those ‘lost’ GM sales would have been transacted by other auto makers. Then those other auto makers would pay tax on that sales revenue.
GM apologists keeping ignoring opportunity costs and pretend that if GM went under, no other firms would move in to meet the market demand that GM was serving.
Many car companies have failed since the 1930s, workers relocate and consumers adjust. Another car company rises and hires workers and people buy new brands and models.
GM apologists keeping ignoring opportunity costs and pretend that if GM went under, no other firms would move in to meet the market demand that GM was serving
Not true. Most “apologists” are saying that eventually other firms would step up and eventually the supply chain would sort itself out and eventually the other suppliers and OEMs that crater might be replaced, too.
We just don’t think that the interregnum is worth suffering through.
It is worth noting that Toyota, Ford and Honda didn’t want GM to bite the dust. That should tell you something about how disruptive it would have been.
No, the anti-market diapering of GM is going to go on for many years Leyland-style and not just some interim. This is not a soft landing but putting good money after bad and because GM is considered too big (and politically connected) to fail.
Under what circumstance can GM be allowed to fail? When unemployment is 0.0%? When GM profitability falls to such a level that even the apologists get embarrassed?
Toyota’s remarks about wanting GM to succeed was just PR nice-speak. They want to be number 1, make bigger profits and gloat back in the board room.
Another $45 billion dollar welfare check for the UAW and Big Business. What would we do without liberals to protect us from the special interests?
So how much welfare is that, total? $125 billion? What would UAW workers do without mommy taking care of them and wiping their noses?
So GM will pay less taxes. I thought teabaggers loved tax cuts, and prescribed them as the answer to everything from recession to the housing slump to stopping giant meteors.
We do love tax cuts, but only for solvent corporations that can pull their own weight rather than those that have to rely on welfare handouts so they can keep producing the flimsy, unreliable junk that landed them in bankruptcy court in the first place.
But that aside, we in the Tea Party consider government spending more of an emergency than lower taxes. Feel free to ignore that fact whenever it suits your argument.
First of all, effectively it’s not $45bn…Maybe $20bn, maybe even less depending on how things turn out (maybe GM can’t even make enough to cash all these tax breaks in the next 20 years and in the meantime, the government still gets a pretty penny for the shares). The $45bn is just an arbitrary number that someone put out there for whatever motive they might have.
Second, I don’t see how you can have a bigger problem with government spending than with taxes, cause ultimately the two are bound to end up the two pieces of the exact same coin.
Third, from what I’ve seen I’m guessing the majority of the people at tea party rallies would in all likelihood actually be better off if there was a bigger welfare state rather than a smaller one. When I see what happens at some of those rallies (not all but definitely too many), I think the US is reaching a point where a democracy can no longer exist as too many people haven’t got a clue what’s going on in the world. To an extent some people will sadly never be able to regardless, but you can only let ‘the people’ run a country if ‘the people’ are capable of making at least somewhat informed decisions. Some pundits on a certain ‘news’ network don’t really help in that regard by instead trying to persuade the people not to think at all for themselves and let the god(s) (ie, said pundits) take care of business for them. I wonder how many of the viewers know about the vested interest that a guy like Glen Beck has in spreading the fear and ignorance. Over $30mm reasons per year according to some sources, in fact. Should he lead the country, I wonder?
Normally when a big corporation pays little or no taxes, progressives would be indignant. But GM is a special needs case that gets a pass because the stakes are high for this government owned labor project (that also makes cars too, but that’s not as important).
The last two years have been enjoyable from one aspect – watching those on the left either remain silent or strongly advocate various moves by this administration that, when they are done by Republicans, nearly send them around the bend.
Various policies regarding sanctioned military actions and the Patriot Act fall into the former category (they are met with a defeaning silence), while moves such as this are justified. (No, it’s not really corporate welfare, because we’ll get more of our money back! But wasn’t it corporate welfare to bail out GM in the first place?!)
Libertarians get their fair share of bashing from those supporting the bailouts – some of it justified – but at least they aren’t a bunch of hypocrites when it comes to moves such as this.
If this goes on much longer, many liberals either will have their heads explode from the cognitive dissonance, or they will just give up and start reading Fortune, and liking it.
The last two years have been enjoyable from one aspect – watching those on the left either remain silent or strongly advocate various moves by this administration that, when they are done by Republicans, nearly send them around the bend
I’m going to pull the same card the conservatives and libertarians do when people call them on not having complaining about George W. Bush’s interventions.
Many “liberals” aren’t happy about the status quo, and are complaining. I know several who spit nails about health care (for completely opposite reasons than libertarians), Guantanamo, habeus corpus, warrantless wiretapping, don’t-ask-don’t-tell and, among the more extreme, the bailouts to the banks. Many of them stayed home last night.
The big difference is that democratic socialists get absolutely no airtime or representation in the United States, and the movement has to suffer as the red-headed stepchild of the Democrats. The wealthy can use libertarianism, or at least it’s idiot populist cousin, but no one who makes money wants anything to do with a movement whose foremost maxims include disempowering the wealthy.
The really tragic thing is that the anti-authoritatian left and right have more to do with each other than the parties who ostensibly represent them.
Libertarians have LONG been critical of the Bush Administration. They did not stay silent. Reason magazine, the leading voice of the movement, was critical of the Bush Administration almost from day one. It criticized him for spending too much, the Medicare drug prescription program, and the war in Iraq.
And if you are going to allow liberals to use their decision to stay home as an excuse for their silence on the administration’s actions, then conservatives get the same benefit. One reason that the Democrats won big in 2006 and 2008 was because many disgruntled conservatives sat out the elections.
This move is corporate welfare, plain and simple. It’s the type that used to send liberals into a tizzy, but I guess now it’s okay, because a Democratic administration is permitting it.
As for Social Democrats – they are only about disempowering the wealthy to the extent that they can obtain that wealth and power for themselves, or use it for their own ends (which is usually enriching themselves and their supporters). They are just as money-grubbing and power-hungry as anyone else, but with a strong touch of hypocrisy added to the mix.
Libertarians have LONG been critical of the Bush Administration. They did not stay silent
Neither did socialists under Clinton or Obama. You’re just lumping the whole block of the left together, which is exactly what you’re complaining about being done to you.
If I accept that theory, though, it’s obvious that that have about as much impact on the Republican party as real socialists do on the Democrats. Good for the goose, good for the gander.
As for Social Democrats – they are only about disempowering the wealthy to the extent that they can obtain that wealth and power for themselves, or use it for their own ends (which is usually enriching themselves and their supporters). They are just as money-grubbing and power-hungry as anyone else, but with a strong touch of hypocrisy added to the mix.
And I can just as easily say that Libertarians only want laws revoked where those laws are a restriction to their own personal enrichment, or that of their own cronies. Given the kind of people who put money into so-called Libertarian candidates I think that’s a distinct possibility, and that you’re either naive or disingenuous.
Again, goose, gander.
Maybe it’s time to come to grips with the fact that your supposed opposite number isn’t the monolithic block you think it is, and that the hypocrisy and corporatist string-pulling is rife on both sides.
psarhjinian: Neither did socialists under Clinton or Obama. You’re just lumping the whole block of the left together, which is exactly what you’re complaining about being done to you.
I originally referred to those on the left in general, and liberals in particular, which, as you admit, are different from socialists. I did not lump that all of them together.
It is liberals who have remained silent on this administration’s various policies and actions that would have sent them into a tizzy if a Republican administration had done the same things.
psarhjinian: If I accept that theory, though, it’s obvious that that have about as much impact on the Republican party as real socialists do on the Democrats. Good for the goose, good for the gander.
Except that I was referring to liberals, not socialists, so my original point still stands.
psarhjinian: And I can just as easily say that Libertarians only want laws revoked where those laws are a restriction to their own personal enrichment, or that of their own cronies. Given the kind of people who put money into so-called Libertarian candidates I think that’s a distinct possibility, and that you’re either naive or disingenuous.
You can say that, but it’s not true. Libertarians only want no government interference in the marketplace. They aren’t looking to enrich themselves at the expense of others. The fact that someone is already rich isn’t proof that they want to rig the system in their favor. It’s only proof that they know how to make money.
Whereas we can judge what Social Democrats have DONE in other countries, and it ultimately involves rigging the game in favor of the status quo (meaning, what benefits them and their cronies).
psarhjinian: Maybe it’s time to come to grips with the fact that your supposed opposite number isn’t the monolithic block you think it is, and that the hypocrisy and corporatist string-pulling is rife on both sides.
I never said that it was…you have been lumping socialists and liberals together. And the simple fact is that, over the last two years, liberals have looked the other way while the current Administration has committed virtually every “sin” that they accused the Bush Administration of committing. Plus, liberals have long accused conservatives and libertarians of being shills for big business, or favoring the corporation over the “little guy,” so when they support moves like this, they deserve to be called out as hypocrites.
Perhaps they are engaging in the psychological phenonemon known as “projection.” After all, it is the liberals on this site who seem to be the bailout’s most ardent defenders. The bailout was corporate welfare, plain and simple, of the type that they have long accused conservatives and libertarians of supporting to the detriment of the country.
Yet, now it’s supposedly okay, and even allowing the “new” GM to lower its tax bill (I thought corporations paying taxes was the perfect embodiment of that thing called “social justice,” but I guess not so much anymore) by using tax credits held by the “old” GM is just wonderful.
Geeber said: This move is corporate welfare, plain and simple. It’s the type that used to send liberals into a tizzy, but I guess now it’s okay, because a Democratic administration is permitting it.
No, liberals consider corporate/union welfare okay now because the money will flow back into Democratic coffers. Obama hands GM and the UAW $90 billion of other people’s money and they hand some of it it back to them in the form of campaign contributions.
Geeber said: As for Social Democrats … They are just as money-grubbing and power-hungry as anyone else
Exactly. Social Democrats want money as much as any billionaire. The only difference is the latter knows it has to be earned and the former believes they are entitled to it because they fell out of a vagina and can draw breath.
But I think we can all agree on one thing: The Libertarians are right. There is almost no difference between Republican and Democrats. Democrats have been slinging around corporate welfare like there’s no tomorrow. With regard to Guantanomo, DADT, wiretapping, rendition, wars, etc — you’d think George Bush was still in office.
That reminds me. Where have all the war protesters gone? Obama is dropping bombs on women and children in Pakistan (without even begging for the UN’s permission, noless) and yet the war protests have simply disappeared. A cynical person might think that the liberals conducting them never really cared about all “the little brown people” being killed and that it was all some insincere, disingenuous ploy to grab the reigns of power once again.
In addition to the increased stock value, the government stands to benefit from the taxes new GM shareholders will pay on dividends – if and when those dividends show up. Separate train of thought: I wonder if that big tax loss carried forward would make GM an acquisition target?
By the way, I predicted this back in August. Back then I said, purchasers of the IPO would be paid off with tax breaks and I was right.
https://www.thetruthaboutcars.com/2010/08/quotes-of-the-day-the-coming-ipo-edition/
So, $45 billion in tax breaks for the benefit of the unions, corporations and foreign investors. Do we file this under Hope or Change?
this is an idiot’s argument. The tax payer loses nothing since $45b is in tax revenue they never would have gotten. The argument that other companies would have gobbled up the lost capacity is also an idiot’s argument since you are forced to consider how many GM employee’s would be out of work and NOT buying cars and NOT paying income tax and COLLECTING unemployment. when you deal with a huge company like GM, you deal with economics on a scale that affects more than peanuts numbers like $45b in tax revenue. The author should either stick to reporting about cars and keep his trap shut, or actually research a bit more and offer a balanced viewpoint.
I didn’t like the idea of Government Motors, either. but then the government fired Richard Wagonner and instantly proved itself more capable of running the company than current free-market would have us believe.
So since tax breaks for huge corporations are such a great idea, why not eliminate all corporate tax? As you state, think about all the jobs that would save. And if those workers get laid off, they couldn’t buy cars or pay taxes, etc etc.
The only “idiot’s argument” I see is the one where the taxpayers just throw the unions and bankrupt corporations one $40 billion dollar snack after another. I think yesterday’s election results demonstrate that most people agree.
And seriously, did you just call $45 BILLION DOLLARS “peanuts”? I guess when we have an administration measuring success in trillions of dollars spent that we don’t have, it is.
Anyone still think it was a real ‘bankruptcy’ GM went through?
Corporate welfare at it’s worst. I know, I know it’s all about jobs. But just jobs with GM and Chrysler. All the other companies that went under during this time, well, screw them. They didn’t donate enough to both parties to have a taxpayer funded bailout.
Farm subsidies, bailouts, bridges to nowhere…. all part of Crony Capitali$m. There is no meaningful difference between these, as the taxpayer winds up picking up the tab. And by taxpayer, I mean the 50% of us that actually pay into the system.
JJ said: The $45bn is just an arbitrary number that someone put out there for whatever motive they might have.
What would be the basis of that statement? Wishful thinking? $45 billion was the number that GM filed withg the SEC when registering for it’s IPO. It’s not an estimate or a guess. It is a figure that was derived from the bankruptcy court and the special welfare carveout for them that was hidden in their bailout. Try again.
JJ said: Second, I don’t see how you can have a bigger problem with government spending than with taxes, cause ultimately the two are bound to end up the two pieces of the exact same coin.
Very perspicacious. Taxes, spending, debt, whatever. It’s all the same thing. lol
Here, I’ll try to spell it out for you and I promise to use small words: If the government spends less money, then it incurs less debt or steals less money from the job creating private sector.
And finally, here’s your coup de grace where you declare the American people too stupid to be allowed to be free:
JJ said: tea party … better off if there was a bigger welfare state rather than a smaller one. …democracy can no longer exist… people haven’t got a clue what’s going on in the world. … you can only let ‘the people’ run a country if ‘the people’ are capable of making at least somewhat informed decisions.
Readers, do you see what elitists these people are? They call themselves “liberal” and then do everything in their power to crush liberty, to limit your choices, to deny you the fruits of your labor. Why? Because you are too stupid and they are so much smarter than you.
Yes, they will try to co-opt you with welfare handouts and food stamps. But is that who you really are? Is that who we really are?
Mind you, this is the genius who thinks the tax break that GM listed in their IPO registration is just a made up number. This is the guy who thinks taxes and spending are the same thing. And he thinks you are too stupid to make your own decisions.
$20 billion, 45 billion, debt, taxes, spending, whatever. Do you see now why we are headed for bankruptcy as a nation?
Guess you still didn’t read my comment on why that $45bn isn’t going to cost the people $45bn, so one more time; if the 45bn is correct (and mind you, it IS an estimate cause it can’t be readily incurred now, this will have to happen over the next 20 years), the 45bn will add $45bn of value to GM. Since the government owns approximately 60% of GM, by giving them these tax breaks of the estimated 45,4bn, they’ll add 61% of that 45,4bn to their own shareholder value = $27,7bn.
So, the real difference is an estimated 17,7bn. Tons of money, but not the 45bn you keep ranting on about in blind denial of the facts.
As for taxing more or spending less: Let’s just keep it simple, ultimately if the government spends more it has to levy higher taxes and vice versa…They’re the two pieces of the same coin. If you’re saying you want to pay less taxes you’re also saying you want to see less spending, these two are not independant variables, so I can’t see how you can be more against the one than the other is all I’m saying.
Third, well excuse me, but when I see people stomping on other people’s heads, people seriously thinking Obama is a muslim (and thinking it’s the greatest sin on the planet to be a muslim), and finally, a political candidate practising witchcraft (ok, fine blown up in the media), protesting about supreme court cases yet not being able to mention just ONE of them and, as the clincher claiming ‘large corporations have now started to crossbread humans with animals, resulting in mice with full human brains’ STILL get 40% of the votes…I’m starting to really doubt their decision making ability. I’m allowed to do so, aren’t I, I thought you tea party guys were so big on individual freedoms?