The GM-Chrysler Bailout Tax

Commentary, Taxation, Frontier Centre

In the bizarre new world created by Ottawa and Washington D.C., healthy companies—hello Ford, Toyota, and other non-troubled automakers and their employees—are punished due to General Motors and Chrysler; the latter gave away the farm on pay, pensions and health benefits and apparently have managers, employees, and retirees who now expect others to pay for such profligacy, this as if there exists a right to the paycheques of others.

In the real world, only 38 per cent of Canadians have a company or union pension; many of those, and also the 62 per cent who must provide for their own retirements, will also now pay for GM and Chrysler pensions.

In the upside-down world created by U.S. president Barack Obama’s tight links to American labour, those who lent GM and Chrysler money in good faith—not just those in blue suits but the money they manage which belongs to retired teachers, your grandmother and other folks—are told their legal rights should be foregone; they are told their interests must come third (and for pennies on the dollar) after governments that send good public money after bad managers, and after autoworkers’ unions who helped sink GM and Chrysler in the first place.

In the economic world created by both Democrats in D.C., and—I’ll take a wild guess—by Conservative M.P.’s from southern Ontario who plumped for “aid” to the auto industry, a federal deficit estimated at “only” $35-billion in late January will now end up at closer to $50 billion.

If, as is now estimated, the total bailout package delivered to GM and Chrysler reaches $13 billion from the federal and Ontario governments alone (excluding the Americans), the math becomes simple: most of additional federal deficit this year is directly attributable to the auto bailout and thus to southern Ontario Conservative MPs.

In the consumer world now bent out of all recognition by government fiat, consumers who recently bought a Ford, Honda, Hyundai, Toyota, Volkswagen, or some other automobile, may have assumed that purchase was their only contribution to an automaker’s bottom line.

Not quite. Here’s a figure to consider: According to auto industry analyst Dennis Desrosiers, automobile sales in Canada in the first four months this year totalled 428,500 (down 20 per cent from last year). Subtract the vehicles sold by GM and Chrysler, and 294,675 automobiles were sold by other automakers between January and the end of April.

Assume that automobile sales and market share market will remain constant for the next eight months. Thus, almost 1.3 million automobiles will be sold in 2009 with just over 884,025 moved off the lot by everyone except Chrysler and GM.

Now suppose that instead of billing the public treasuries of Ottawa and Ontario $13-billion for a GM-Chrysler bailout, every consumer who purchases a new automobile in 2009 was billed directly for their “share” of the bailout.

In other words, suppose governments in a rare moment of taxation honesty, added a “GM-Chrysler bailout tax” to every automobile customer’s invoice. This year, a $13-billion bailout billed to non-Chrysler-GM purchases, i.e., to just over 884,000 new automobiles, means each buyer would each face an additional auto tax of $14,705 (and forty-seven cents for those who like to be precise).

In a recent interview, a reporter half-objected to my standard reply on corporate welfare: it is lousy policy, unfair to competitors and their employees, costly to taxpayers, and as such is as dumb as the proverbial sack of hammers.

“Yes” he replied, “but given the reality of politics, what options would you suggest?”

His question assumed a lot, not least of which is that politicians have no control over policy.

Politicians can’t control the weather and many other events in and outside of politics; they can decide whether to spend public cash, the equivalent of $14,700-plus for every new, non-GM/Chrysler vehicle sold in 2009.

Because of an inability to say no to another bailout, the political class in Ottawa, to say nothing of the worse problem in Washington, have indeed created that $14,705 reality. It is the rest of us who will pay for it.