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While President Obama campaigns on “tax fairness” – eliminating loopholes for the wealthiest one percent, the oil companies and other big corporations -- his favorite corporate giant is enjoying an unprecedented, under-the-table multi-billion dollar tax break.
In addition to the more than $50 billion given to General Motors in the bailout, the Obama administration quietly snuck in a special tax break for GM, which allows the company to write off approximately $45 billion in post-bankruptcy losses against post-bankruptcy profits.
The result? In 2011, GM paid nothing in federal income taxes despite claiming record profits of $7.6 billion, the “highest profits in the 100 year history of that company” according to President Obama.
In fact, that’s not quite right. GM paid a tax rate of negative 1.5% on its record profits – less than nothing.
That’s right, while you were paying your income taxes last month, the IRS was sending General Motors a check for $110 million. And GM’s tax break is a gift that will keep on giving every year at tax time.
It’s good for twenty years.
As with the original $50-plus billion bailout of General Motors – and the $7,500 Chevy Volt tax credit that goes to people with an average income of $170,000 a year – this multi-billion dollar tax gift comes at the expense of ordinary taxpayers who lack GM’s close connections to the White House.
How did this blatant example of crony capitalism come about?
GM’s tax break arises from the Obama administration’s distortion of legitimate tax provisions which allow companies to use prior-year losses – of which the Old GM had plenty – and certain other costs to reduce their current-year federal income taxes. In Section 382 of the tax code, Congress limited these "net operating loss" (NOL) carry-forwards to discourage the buying and selling of tax deductions.
As a result, New GM could not have written off the Old GM losses that were discharged in the bankruptcy. However, as Harvard Law School Professor J. Mark Ramseyer and Indiana University’s Dalton Professor of Business Eric Rasmusen explain, the Obama Treasury Department “‘solved’ this problem by issuing a series of ‘Notices’ in which it announced that [Sec. 382] did not apply [here].”
Because companies like GM that file for fast-track bankruptcy without affording due process protections to creditors don’t normally get to preserve NOLs, Treasury’s unprecedented Notices allowed GM “to retain the cake while eating it,” notes Duke Law Professor Jeffrey Coyne.
Though the Treasury Department “had no legal or economic justification for these Notices,” according to Professors Ramseyer and Rasmusen, a GM spokesman tried to justify the company’s negative income tax rate by noting that GM pays “other taxes,” including “taxes around the world.”
Are we supposed to be reassured by knowing that GM only stiffs American taxpayers?
The truth is General Motors and the Obama administration didn’t need a justification, because they counted on this unprecedented tax break being too arcane for reporters to understand or write about.
So far, they’ve been right.
GM’s sweetheart tax deal has largely slipped under the radar screen, allowing Obama to both rail against tax loopholes and claim the auto bailout cost taxpayers far less than it actually has.-- If GM’s tax gift were counted, the official cost of the bailout would double from $22 billion to $40 billion.
Polling indicates that public perception of the auto bailout “grows a lot more negative when the actual price tag is attached.” Add to that the public’s revulsion at crony capitalism and it’s no surprise that General Motors, the Obama administration, and their cheerleaders in the news media don’t want you to know the real cost to taxpayers of the auto bailout.
Curt Levey is an attorney and the Executive Director of the Committee for Justice in Washington, DC. He can be reached at @Curt_Levey on Twitter.