Where’s MY Tax Break?

$45.4 billion. That’s a big number.

It’s also the amount of tax savings that General Motors… excuse me, the NEW General Motors… brought with it into the new decade.

What a disgrace.

As all of us keep our noses to the grindstone, looking at 2013 with trepidation because of potentially rising taxes, GM knows it will pay nothing in taxes for… well… probably forever.

For this privilege, all GM had to do was rack up billions in losses, crush their bondholders, have their debts forgiven and take a $50 billion loan from the government, which it converted into an equity investment.

What a country.

This is why we need a taxpayer/citizen revolt.

How GM Pulled off This Scam

Back in late 2008, the Bush administration granted an emergency loan to GM and Chrysler to keep the companies in business. In early 2009, the newly-minted Obama Administration increased the emergency loan. Then it gave them a “get out of jail free” card.

GM proceeded to bankruptcy. Chrysler was given to FIAT.

GM went into bankruptcy with a lot of debt, including the loans from the U.S. government. It emerged from bankruptcy with a new owner, a.k.a the U.S. government, which holds a 61% share of the company. The rest of GM is owned in part by the Canadians, in part by unions and in part by bondholders who were given a token slice.

Besides new ownership, GM rose from the bankruptcy ashes with something no other company has been able to keep. That is, a tax loss carry-forward.

Now, every company experiences ups and downs in its profits in a business cycle not confined to a calendar year. So, Congress recognizes that constraining companies to a calendar year might lead to iffy business practices or short-sighted decision-making.

If a company takes two years to develop a new product and incurs losses along the way, it can use those losses to offset the profits earned in later years. This makes sense.

However, when a business goes under, it’s not allowed to hold onto its tax loss carry-forward because that would incentivize many profitable companies to simply buy dying companies to avoid paying taxes.

In GM’s case, this is exactly what the government wanted. It argued that GM keeping its tax loss carry-forward would make it more attractive to potential buyers.

What?!?

If that were the criteria, then wouldn’t EVERY business that goes under deserve to keep its tax losses?

The Real Issue Here

The clear issue here is not GM. Instead, it’s the government’s willful disregard for the law whenever it suits its own purposes. This is why a company like GM can keep its tax losses to put against future profits that you and I had to fund with $50 billion in bailout money.

This is why our Secretary of the Treasury can mis-file his taxes, claim the turbo-tax defense and owe no penalties or interest.

As ordinary citizens, we get none of these benefits, but boy do we pay the price for them.

As 2013 gets closer, and so many tax breaks and low tax rates expire, keep in mind exactly who is paying and who is not.

Rodney

Publisher’s Note: Nothing has changed. The economy is NOT getting better. Banks are still loaded down with billions in toxic assets. Our nation’s debt continues to rise. The housing market is still in shambles. Desperate to hide these truths from you, the government and Wall Street have unwittingly created the next financial time bomb. When it blows, use the opportunity to grow your wealth. Harry tells you the four specific steps you need to take today to be ready. Here are the details.

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.