Bailout Watch 542: Doh! We Forgot the Tax Breaks!

Robert Farago
by Robert Farago

Previously, on Who Wants to Own an Automaker, I estimated the Motown meltdown has sucked more than $100 billion from the taxpayers’ purse. I forgot to mention the tax breaks that the Treasury Department will bestow upon “new” Chrysler and “new” GM. The Desert Sun reports that GM will benefit from Uncle Sam’s new rules for bailout recipients—’cause we don’t want a government-owned/controlled/supported enterprise to pay taxes to the government, now do we? “The notices have the full effect of a law, even though they aren’t reviewed or approved by Congress. They also apply to banks and other financial firms receiving money from the Troubled Asset Relief Program, or TARP.” Remember “these are not ordinary times. The Treasury Department has, in effect, suspended long-standing tax rules for companies that receive bailout money, providing benefits not available to firms that don’t receive government help.” The Sun says GM could avoid some $12 billion in taxes. Wait; did you spot the loophole?

But the new rules don’t apply to corporations taken over by other private companies. That means Chrysler could lose the value of its tax write-offs in its merger with Italy’s Fiat Group SpA, depending on the structure of the company after it emerges from bankruptcy protection, tax experts said.

So our prediction that Renault – Nissan may ride to the rescue of GM could fall afoul of a tax law. Unless, of course, the Treasury modifies the rule. What’s to stop them?

Robert Farago
Robert Farago

More by Robert Farago

Comments
Join the conversation
4 of 29 comments
  • Fallout11 Fallout11 on Jun 01, 2009

    Oh, and ammunition was good to me as well, up 400% in the last four years. =P

  • Pch101 Pch101 on Jun 01, 2009
    I made a small fortune on gold since 2001 (still holding) In the long run, as I have noted above, the annual compounded returns on gold are not particularly good. This is just a fact, and one that contradicts what all of the gold bugs have been claiming. Buying and holding large amounts of gold and holding it into perpetuity is not particularly terrific. As a store of value, it's not particularly reliable, as any chart will indicate. Like everything else, there is a time to buy it, and a time to sell it. Not to knock a good trade, but you could have made the same percentage return on Ford in the last 2.5 months than you did with gold in eight years, even before adjusting for the compounding effect. Gold is due to top out soon enough. Make sure that you get out at the right time.
  • Fallout11 Fallout11 on Jun 03, 2009

    Or, I could just have easily lost it all with Ford if they went belly-up (see also GM and Chrysler). Gold would and will always still be worth something. I made 866% on oil (86% return per annum avg), 400% on ammo (100% return per annum avg) and 359% on gold (45% per annum avg). No stock or bond performance during those timeframes even comes close to those for more than a few months at a time (and then largely retraced or worse), and all had greater inherent risk. None of my other long-term investments (S&P stock funds, bonds, or T-bills) even came close, either. As for gold, just yesterday Northwestern Mutual bought hundreds of millions in gold (their first purchase in 152 years), citing it as a good hedge against asset price depreciation. I stick with Eric Janzen/ITulip.com (and my own) forecast target of $2500/oz. It has been and remains a solid investment for the foreseeable future, especially given the decline in other "asset" classes (especially vs. inflation) and rampant monetary inflation on the horizon.

  • U mad scientist U mad scientist on Jun 03, 2009
    I made 866% on oil (86% return per annum avg), 400% on ammo (100% return per annum avg) and 359% on gold (45% per annum avg). Yeah, ok, whatever buddy. I'd suggest a financial adviser who at least has a tentative grasp on math.
Next