Another reason the Federal Government should not bailout private companies
Posted by Mike Sylvester - 7/17/09 @ 6:10 pm - Filed Under National Politics
As you know I oppose all of the bailouts that have occurred in the last several years.
That being said those in Washington decided to bailout GM and Chrysler through a Federally funded bankruptcy. The taxpayers now own a large amount of both Chrysler and GM.
Chrysler and GM (Along with the Obama Auto task force) decided that in order to be more competitive they would have to shutter a large number of car dealerships. Due to state franchise laws it was going to be very expensive for them to shed these dealerships; however, with the assistance of the bankruptcy court both companies managed to start the process of shuttering dealerships.
Once again, this was done to make the car companies more viable.
This is important because the taxpayers now own them and if they continue to lose money then the taxpayers will likely be forced to inject more money into these failed companies.
President Obama feels strongly that Congress should not interfere with the decision to shutter many dealerships. In this instance I 100% agree with him.
Unfortunately Nancy Pelosi and House Democrats disagree and want to interfere with the process that MAY allow the car companies to eventually become more viable.
I have another problem with this vote before I get into the specifics of the vote. Why did Nancy Pelosi combine two items that are completely unrelated into one vote? I think it is because she is following the “politics as usual” approach in DC rather then fulfilling her campaign promises…
This bill passed yesterday with 219 yes votes; 4 were Republican and 215 were Democrats. This bill had 208 no votes; 170 Republican and 38 Democrat.
This illustrates another reason why the Federal Government should never bail out private companies. Congress is often unable to understand the decisions business have to make in order to survive.
Good grief.
Mike Sylvester
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6 Responses to “Another reason the Federal Government should not bailout private companies”
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My favorite quote.
Oh the irony…
By giving any opportunity for the government to be involoved in ownership of any company, Congress will seize the opportunity to inject themselves into the day-to-day management of the company. THe best current example is the Congress’ meddling in the operations of the Postal Service. They want to maintain 6 day delivery and prevent facility consolidations yet provide no financial assistance for operations. Why have management when Congress can do a better job of managing?
Look at how well they have run Social Security. Since 1937 SS has raised the payroll tax from 2% to 10.6% on what was just $3,000 a year to a base of $109,000 and now has an unfunded present value liability of over $20 Trillion based on a US Treasury rate of 5%. Anything lower just raises the liability.
Want another? Take a look at the boondoggle called Medicare. It reimburses providers 70% and what Medicare does not pay gets shifted to the rest of us. Since that was not bad enough, Congress and the idiot Bush signed a Rx drug plan with a present unfunded liability of over $4 Trillion. This resulted in Medicare being unable to pay full promised benefits (not guaranteed mind you) by four more years.
Oh, and we should not forget the FDIC which is broke, but is still guaranteeing deposits by printing money.
Then there is that big pension program that guarantees company pensions in the even the companies goes belly up.
Who used to say “Another fine mess you have gotten us into?”
Mike, your post (and the subsequent comments) point out quite clearly how sooooo many people (be they politicians, auto execs, wall street tycoons etc) cannot grasp the concept “every action has a reaction”.
Our government is perpetually in “react” mode, giving no regard to the to fixing of any original problem or the consequences of the knee-jerk reactions they make. It just happens over and over and over….
The Healthcare debate over taxing health benefits of employees has struck a nerve. The cost of providing Healthcare benefits to employees is not taxed as income. Similar to 401K which is tax deferred and medical health accounts are not taxed. We could also add in the combined total of mortgage interest, state, local and property taxes, charitable contributions, losses that exceed 10% of AGI, medical expenses that exceed 7.5% of AGI, all of which exceed the standard deduction of (Head of Household - $8,000, Married - $10,900, Separate - $5,450 and Single - $4,750 for tax year 2008).
Itemized deductions are no different than employer paid Healthcare, they reduce taxable income. There are also the tax credits for higher education. These are worth far more than deductions, for they are subsidized $1 for $1 by other taxpayers. The $1,000 child tax credit is also another $1 for $1 subsidization from the taxpayer. The extra personal exemption for those age 65 and over as well as blind and disabled exemptions are subsidizations from the taxpayer to the individual. Take the ROTH IRA that allows after tax money to be deposited into a retirement account to grow tax free, but to be withdrawn tax free at age 59 ½ and are exempt from death tax. 401(K)’s, IRA’s and Roth IRA’s were all created to stimulate savings and to reduce dependence on Social Security. This has greatly reduced federal revenues, but had done nothing for social security nor budget deficits.
Every time congress passes legislation creating a new exemption or tax credit, they reduce federal revenues. They do this with the intention of helping people. The result is a convoluted income tax system where people plan their spending and savings to reduce taxable income and ultimate federal taxes paid.
Instead, we should encourage the generation of income. How many would trade vacation for an increase in pay? Maybe you use a lot of Healthcare and would trade better coverage (lower out-of-pocket expense for less vacation, holiday and wages). When evaluating a position, I have always looked at the total package and evaluated the equivalent worth of non taxable benefits such as dental, eye, medical, 401(K) contribution, vacation and pensions. I refer to these as tax deferred or non taxable benefits. They mean a lot to me as well as others.
With Healthcare becoming more expensive, people are shifting their wage and benefit package towards Healthcare and away from direct wage increases. The individual owes less taxes and pays less out of pocket. We could end up ultimately where a company provides you a very low wage, but five weeks vacation, health, dental, eye, Rx, vacation resorts, car, house and even groceries. These would all be expenses for the company, but the result is the worker would have very little taxable income.
In essence the government is dictating everything. I have proposed for decades that there be no itemized deductions, no child tax credits, and more. I am not for a flat tax, or a value added tax, but a tax form along the lines of Indiana. This eliminates thousands of special interest groups, reduces paper work, simplifies tax preparation, reduces cheating and leaves the individual to choose what they spend their money on, not dependent on whether buying a particular item (solar panel, car, having a child, paying for college) will save them taxes. It will be based on need and desire, not government.
What is happening is congress is corralling taxpayers into specific ways of spending money. Spending money should not be based on tax consequences, but needs. However, politicians love having the power to change the economy by providing tax incentives to save energy on windows, doors, solar, wind and more. Instead of the market making decisions based on cost, congress is manipulating the markets and thus causing havoc. This havoc is occurring because the market is getting squeezed by government. The fewer disposable dollars there are the fewer individual choices that can be made and the economy becomes narrowly focused.
The income tax structure is no longer designed to be fair to all citizens and a method to create revenues to pay for constitutional obligations. It is a vehicle to manipulate society to do what Congress wants them to do. Buy this, do this, don’t do that, etc.
We no longer have the right to pursue hapiness, they determine what your happiness will be.