Tonight, while the moderators are undoubtedly going to spend a lot of time peppering our GOP candidates with questions that serve only to divide them, I hope that someone will follow up on a point that Newt Gingrich made on the September 12th debate.
I was astonished the other night to have the President there in the joint session with the head of GE sitting up there and hear the President talking about taking care of loopholes. And I thought to myself: doesn’t he realize that every green tax credit is a loophole? That everything he wants, everything General Electric is doing is a loophole?
True enough. I’ve said before that when a Democrat proposes it, it’s called a “business incentive” and when a Republican proposes it, it’s called a “tax loophole.”
But to Newt’s point, General Electric has managed to avoid paying about $3.2 billion. That’s a hefty number, certainly nothing to ignore. $3.2 billion would feed a lot of kids, pay for a lot of medical visits, finance a lot of trips by the First Lady to Spain (Well a few of those anyway).
Put simply, $3.2 billion is an astronomical amount of dough. Yet, it’s only a fraction of what has been afforded to General Motors through tax breaks.
Companies are normally able to claim future tax breaks against past financial losses, but they usually lose those tax breaks after a bankruptcy because they get to wash away all their debt. Not the case with GM:
Since the company shed $30 billion in debt during bankruptcy, it should have wiped out most of the tax break. GM even warned it expected to lose those tax breaks shortly before filing for Chapter 11 protection.
But somehow, that never happened, and the automaker was able to keep most of its tax breaks, essentially receiving a $14 billion “gift” from the government.
While it’s unclear why GM was allowed to carry over its losses, some experts insist that GM got preferential treatment.
So why the special treatment for GM?
One reason the government might have let General Motors claim the loss, was to reduce the perceived cost of the bailout, said Linus Wilson, finance professor at the University of Louisiana at Lafayette.
By allowing GM to carry over its losses, the reduced tax collections from the company were unlikely to be counted under most accountings.
So, since tax payers were set to lose about $14 billion in the government’s $80 billion bailout of the auto industry, I guess they decided to let these tax breaks slide because $30 billion looks a lot worse than $14 billion.
Of course, $45 billion would look terrible compared to either number:
Now it turns out, according to documents filed with federal regulators, the revamping left the car maker with another boost as it prepares to return to the stock market. It won’t have to pay $45.4 billion in taxes on future profits.
The tax benefit stems from so-called tax-loss carry-forwards and other provisions, which allow companies to use losses in prior years and costs related to pensions and other expenses to shield profits from U.S. taxes for up to 20 years. In GM’s case, the losses stem from years prior to when GM entered bankruptcy.
Usually, companies that undergo a significant change in ownership risk having major restrictions put on their tax benefits. The U.S. bailout of GM, in which the Treasury took a 61% stake in the company, ordinarily would have resulted in GM having such limits put on its tax benefits, according to tax experts.
But the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won’t fall under that rule.
So tonight, I hope that the candidates on stage will take the opportunity as Newt did, to sieze the narrative from the moderators. When they ask about oil companies, corporate taxes, bailouts, or taxing the wealthy, take the opportunity to remind the American people that while they’re out looking for jobs and being told we must raise taxes, buddies of President Obama are getting bailed out and showered with tax incentives that make GE’s winnings look like chump change in comparison.