WSJ the Wall Street Journal:

WSJ

The Wall Street Journal: A $45 billion tax shelter for General Motors

According to an article in the Wall Street Journal by Randall Smith and Susan Terlep, leading automaker General Motors is acting on a condition authored into the government restructuring of the auto-industry that will allow it to offset tax debts by using carry-forwards from previous years' losses. Based on the sum of $18.9 billion dollars in losses carried forward from the years prior to is declaration of bankruptcy, the article indicates that GM would be sheltered from paying roughly $45.4 billion in taxes.

It is commonplace for firms that have declared bankruptcy, been at the center of government intervention and engaged in such massive restructuring to be more categorically limited in the tax benefits that they might receive. In the case of General Motors, its fundamental mishandling of resources over recent years and its subsequent cutting of labor, cutting of worker pensions and major downsizing would be further supported by what amounts to a legislative gift from the government. As the article explains, in spite of the limitations that would normally apply in GM's current situation, "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." (p. 1)

Application to Economics:

The article has direct implications to the federal handling of the economy. Indeed, one of the most highly debated elements of the federal government's massive set of corporate bailout packages was the approach taken toward America's top automakers. Once the lifeblood of the U.S. economy, the major firms operating out of Detroit have struggled in the shadow of their own critical mismanagement. And with last year's major restructuring of the industry both on the American taxpayer's dollar and according to the priorities cited by the federal government, criticism both for the government and the industry have been considerable. With this week's article by the Wall Street Journal, the fire of public hostility will be given yet more kindling.

This invokes one of the key points of public criticism for the federal government's handling of the global and domestic financial crisis. It is largely the view of many sectors of the public that major firms such as GM are significantly responsible for the current state of the economy. That the government appears to have shown such favoritism toward the private sector even as so many segments of the public struggle to make ends meet calls into question the priorities of those who are authoring our fiscal policies.