no third solution

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How to Save the Auto Industry

December 19th, 2008

There are a number of recommendations to help “save” the Auto industry that would probably be more effective than the current Bridge Loan, but they won’t be tried, and they probably won’t even be suggested anywhere else. You’ll never hear anyone in the Mainstream Media saying that taxpayers (from whom the bailout money purportedly comes) should receive an equity share in the failing companies.

I previously suggested that the auto bailout will never be repaid, at least not in any meaningful sense. In reality, anyone who pays taxes should be able to claim an equity stake in the companies that have been bailed out with their money. This will never happen, but I think it would be preferable to the outright corporate welfare that is Teh Auto Bailout “Bridge Loan”.

It’s not the only thing that could work.

In 2007, General Motors paid $37B in taxes. With that in mind, here’s a solution to bail out the Auto Industry without taking money from the rest of us. Open the floodgates:

  • Eliminate all corporate taxes — all of them — any corporate income tax, however applied to big businesses or small ones. Wipe them all out, retroactive to January 1, 2008.
  • At the same time, eliminate all corporate welfare, including but not limited to preferential loans (which would reset to a fair market rate), tax deductions or credits, all direct subsidies, etc. Wipe them all out, retroactive to January 1, 2008.
  • Eliminate capital gains taxes and dividend payments, which depress the rate of economic growth and capital accumulation. Eliminate these taxes for everyone.

If General Motors can’t stay solvent with $37B of it’s own income, then there is no reason to give them any amount of other people’s money#.

Give the markets a taste of freedom. Instead of the Government siphoning our productivity into net-value destroyers like Archer Daniels Midland, instead of taking our money and giving it to Brontosaurs like General Motors, let people decide what will be produced, where, by whom, and in what quantities. Let the people keep the full rewards for those sacrifices they choose to make.

The Bailout is appealling to politicians because it’s the solution that allows the government to exercise the greatest amount of control over the industry, how it is run, how people work and are paid, and what is produced. It is backdoor fascism, which will be exacerbated if the funds already committed are not enough to forestall the Big Three’s demise.

Post script: Would now be a good time to mention that the Capital Gains taxes are going to increase in 2010?

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  • FSK says on: December 19, 2008 at 6:43 pm

     

    You still missed one big solution for reforming the auto industry.

    Repeal all the State regulations that make it hard to start a new car company. For example, it costs millions of dollars to get a new car approved as “street legal”, which means a couple of guys working out of their garage can’t profitably make and sell cars.

    In other words, repeal all the regulations that make it hard to start a new car manufacturing business and allow the “Big Three” to go bankrupt. Instead, there will be a large number of small automakers.

    When automobiles were first invented and the industry was unregulated, there were as many car manufacturers as there were .coms in the 1990s. (At that time, the Federal Reserve bubble creation mechanism was already in full effect.)

no third solution

Blogging about liberty, anarchy, economics and politics