Newly-elected Congressman Jared Polis (a Democrat!) offers some interesting thoughts on the politics of the automotive industry:
Our United States Congress of lawyers, doctors, diplomats, retired military officers and career politicians — along with their staffs of intelligent young political science majors and MBAs — now finds itself poring over “business plans” submitted this week by Ford, GM and Chrysler. People who have never before in their lives seen — no less implemented — a business plan are now trying to decide if these companies will succeed by means of a “capital infusion” with various imposed preconditions and negotiate what we taxpayers (investors) should be getting for our money. Something is wrong with this picture.
If we as a society place a public premium on “saving” the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy — which has been good enough for the steel and airline industries, among others — then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.
By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded “bailout.” There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn’t cost taxpayers anything because it only forgoes future government revenues that wouldn’t exist absent this incentive.
A suggestion with considerable merit–but it would, of couse, deprive Congress and the Administration of the fun of micromanaging a vast industry. More important, it would greatly lessen their ability to store up favors in the favor bank by rewarding specific constituencies. For these reasons, it’s unlikely to happen.
Also, Jared’s plan…although in many ways superior to the pure-bailout alternative that is now on track to be implemented…does share with this alternative one major downside: it would redirect capital to the automotive industry that might be better employed elsewhere in the economy.
See leaving a trillion on the table for thoughts relevant to government-established industrial policy.