Via James Pethokoukis, comes a statement from Elizabeth Warren and three other former members of the TARP Congressional Oversight Panel with some harsh words for the special treatment given to GM:
“When the government bailed out GM, it should not have allowed the failed auto giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives GM a leg up against its competitors at a time when everyone should have to play by the same rules – especially when it comes to paying taxes”
Actually Warren didn’t quite say this. Despite the fact that AIG, GM, and Citigroup all benefitted from a special Treasury rule that allowed them to, as Warren puts it, “duck taxes”, Warren only called attention to the money given to AIG. Here is the phrasing actually used:
“When the government bailed out AIG, it should not have allowed the failed insurance giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives AIG a leg up against its competitors at a time when everyone should have to play by the same rules – especially when it comes to paying taxes.’’
The basic issue is this. When a company has a net operating loss (NOL) in one year, they can carry these losses forward into later profitable years to lower their tax bill. Normally, when a company goes bankrupt and ownership stake is changed by more than 50%, the NOLs disappear. According to a paper by Mark Ramseyer and Eric B. Rasmusen, GM had $45 billion in losses, with a book value of $18 billion, that the Treasury’s special exemption allowed them to keep. According to Warren the exemption has provided AIG with $17.7 an extra billion in profits. It’s unclear why you would complain about AIG receiving this tax bailout and not complain about GM doing the same.
Am I missing something here? It’s quite possible. I’m not a tax lawyer or an accountant. But from where I’m sitting, James Pethokoukis is correct that it is strange to complain about AIG and not GM. The only reason I can see why Warren would do this is that she is a politician running for Senate and she doesn’t want to alienate liberal voters and unions who support the GM bailout, including the part that lets them “duck taxes”.
It’s worth noting that, hypocrisy aside, Warren is right these secret bailouts are a bad idea. People tend to ignore these costs when considering bailouts, indeed many pundits seem completely unaware of them, which bailouts them seem cheaper then they really are. I don’t think we’ll ever be free of the problem of bailouts, and letting politicians hide billions of dollars in costs makes it more likely that the bailouts we get will be even bigger.