ataxingmatter

More on Madoff

Each day seems to reveal more losing investors in Bernie Madoff's house of cards.  See Scheer, Probe of Madoff Intensifies, Bloomberg.com. Dec. 21, 2008 (suggesting 4000 investors, with problems going back to the 1970s).  As the number of losing investors increases, the interest in figuing out the tax angles in the Madoff ponzi scheme increase.  How realistic is the possibility of a theft writeoff?    See, e.g., Browning, Tax Deduction May Help Duped Investors.   Depends, at least in part, on the investor's real status (for tax purposes)--equity holder (theft write off might be ok, and not  as repugnant as  'CG preferential rates, theft write-off ordinary rates' as it seemed when I first thought about it, if most of the money would have been short-term capital gain because of the predominant use of option strategies, as one reader pointed out) or debt holder (with a bad debt loss rather than a theft loss).   Of course, it also has to be a theft (generally, a state law definition) for the theft loss rules to apply, but that may not be a big hurdle for something that looks at this point an awful lot like embezzlement.  Is confession to fraud enough, or will conviction be necessary?  When will everyone know that there are no assets hidden away that could be liquidated to pay off claimants?    Are there assets hidden in Liechtenstein banks that could pay back investors?  They may not know for quite a while.  These timing and recovery possibilities are big issues with theft losses.  Roth & Co. seems to think the IRS will be fairly lenient in its application of the rules in this case:  see this post.   Maybe.

For those wanting more, there is a discussion among Proskauer Rose attorneys that  has been posted on the firm's website, titled simply "The Bernie Madoff Case."  It includes both an audio link and a transcript.  It first summarizes the litigational aspects of the case, from arrest and seizure of assets; handling by SIPC --which insures up to half a million per client for those invested through BMIS, Madoff's firm that was a broker-dealer conducting market making and investment advisory services; the stay on any litigation by claimants and transfer of the case to a bankruptcy judge; to the fact that the company's assets are likely to provide little or nothing for claimants.  Then it talks about the treatment (legal and tax purposes) of payments, There are two kinds--redemptions (return of investment) and dividends (earnings).  Since BMIS was really a ponzi scheme, there could be a fraudulent conveyance issue with respect to both (at least, for redemptions and for purported earnings paid out), but investors could keep their redemption payouts if they are able to use the "good faith" exception, while profits payments are more likely to be subject to reclaim as fraudulently conveyed to investors rather than to creditors. 

Here's what the Proskauer tax attorney says about those losses:

Looking first at the losses of investment, there the law is clear that on the basis of the facts, as we know them, a theft loss will be available. This is a very good loss from a tax standpoint. It is an ordinary loss that’s deductible against ordinary income. It is not subject to limitations, like the 2% floor, and it does form the basis for what's known as a 'net operating loss', which carries back, with regard to a theft loss--it carries back for three years--and it is available to carry forward for 20 years. So, this loss is very effective.

I might add that to be a net operating loss, losses have to exceed income--this loss by itself may not result in a net operating loss. 

What about investors who paid tax on earnings payouts that were only phantom profits, as it turns out?  There, the Proskauer attorney acknowledges the lack of certainty about the options: refund claims only apply for open years; while authority from 2004 that cannot be cited as precedent suggests a theft loss claim is possible, the Service could well review the matter in this context and decide it differently; and the applicability of the claim of right doctrine under section 1341 is uncertain in this context.

Snow, Detroit and end of yearitis

Well, like many others across the northern part of the country, I've been under siege by a plethora of fluffy white stuff that seems like some kind of sci-fi shapechanger.  Along the curbs are mountains piled high and collecting wind-driven debris.  A pheasant was at the corner of my driveway this morning, breakfasting on the bits of sunflower seeds blown from the feeder to the driveway mountain.  Squirrels look like they are practicing making snowangels as they wander across the yard, digging in here, snuffling their noses down to the ground, looking almost like gophers when they raise their heads above the snow for air.  Birds--flocks of them including finches and cardinals for the most part, with some downy woodpeckers and titmice and juncos--wing away from the feeder when I open the back door with a raucus swoosh, and then start their tittering chatter before the first brave one regains the feeder and the entire flock quickly darkens the snow underneath.  It's wintertime, for sure and something tells me it will most definitely still be white for Christmas.

Detroit's Big Three workers and CEOs are, though, a little less white-knuckled than they were a week ago.  The Senate threw them a punch, with the Southern block of die-hard Republicans holding out for union busting no-loans to aid the foreign-based manufacturers (like Toyota, that according to Debbie Stabenow actually pay their current workers about the same--they just don't have a bevy of retirees needing promised benefits that weren't fully paid up back when the Big Three had the profits to do it).  Now the TARP has come to their aid, but with lots of strings attached and maybe not the right ones.  They include some restriction on managerial pay though probably not enough (top 25 can't get bonuses; pay has to comply with EESA, etc.).  They require the companies to sell their private jets (this is symbolic--probably not a good time to sell, and probably not even efficient to sell).   They have to disseminate their expense policies and govern (expense heavy) conferences, travel, and similar expenses that can get out of control without good accountability measures (reasonable, but isn't gonna save that much).   The big deal is that by February 17 the companies have to develop restructuring plans that provide for long-term viability, international competitiveness, and energy efficiency.  (Congress hasn't gotten energy policy or the CAFE standards right after 20 years of pretending to try, but the Big Three are supposed to get it right in less than 2 months?)  The restructuring target that galls me is the one that tells the automakers to get rid of the benefits of unions for their workers--they have to "[reduce] the total amount of compensation, including wages and benefits, paid to their U.S. employees so that, by no later than December 31, 2009, the average of such total amount, per hour and per person, is an amount that is competitive with the average total amount of such compensation, as certified by the Secretary of Labor, paid per hour and per person to employees of with Nissan Motor Company, Toyota Motor Corporation, or American Honda Motor Company whose site of employment is in the United States" and they can't pay anyone that is retired or has been laid off anything different from what other losing-end workers get in this country. 

Doesn't this strike anyone else as crazy?  The company executives and their shareholders ripped the profits off the companies for decades, and used those profits to build factories abroad rather than to invest in factories here at home.  And the workers who didn't get those profits are not to be allowed to get any of the benefits that being able to bargain collectively entitled them to.  So by letting the southern states rip off the northern states by offering tax concessions and union-free workers, we are effectively letting foreign manufacturers set the tune for how much workers make versus how much managers and investors get to take out of a company.  That means that foreign manufacturers are the winners, by setting up a "divide and conquer" strategy that ensures that workers lose out. 

See the term sheets, below, for the strings.  See all my prior postings on what the strings should be--maybe Obama will figure out how to do a long term program, like Air Bus, that will move the industry in the right direction and keep the workers working. 

The WTO has, of course, pushed for opening markets and removing trade barriers, but the Doha Rounds are stalled as global recession/depression settles in.  Fassiola & Kessler, Trade Barriers Toughen with Global Slump, Washington Post, Dec. 22, 2008.  What does partial nationalization of banks mean, and does the depth of the recession call for some protection from globalization for industries deemed essential?  Or is the maxim of free-market economists--that trade barriers worsen economic slumps globally--the better view?  Should we all become "localvores" for everything possible--not just food grown closer to home rather than exported from across the globe, but also manufactured products?--Or is globalization a remedy rather than a disease? 

Here's the information from Treasury:

Chrysler Term Sheets (indicative summary of terms for loan facility), Dec. 19, 2008

General Motors Term Sheet

Here's some of the news coverage from the lead-up to the decision to make the loan to the loan and globalization versus trade barriers:

David Kiley, A Detroit 'Orderly Bankruptcy' Would Require Monumental Marketing to Work, Business Week, Dec. 18, 2008;

Pryson, Big Three Woes Can't Be Good for NASCAR, MLive.com, Dec. 20, 2008 (cancellation of the Detroit Grand Prix);

Sanger et al, Bush Aids Detroit, but Hard Choices Wait for Obama, NYTimes, Dec. 19, 2008;

Fassiola & Kessler, Trade Barriers Toughen with Global Slump, Washington Post, Dec. 22, 2008;

KPMG Tax Shelter Case: 3 convicted and facing decades in jail

The verdict is in for the 4 remaining defendants in the KPMG tax shelter case.  David Greenberg was acquited on all five criminal charges.  The other three defendants--senior tax manager John Larson, tax partner Rober Pfaff, and Brown & Wood tax opinion writer R.J. Ruble-- were convicted on criminal tax evasion charges for their role in promoting shelters like BLIP, FLIP and OPUS. United States v. Stein, S.D.N.Y., No. 05-cr-0888, verdict announced 12/17/08.  However, the three were not found guilty on the charge of conspiring to defraud the U.S. government.  See Neumeister, Three Nailed in KPMG Tax Case, AP-Conn. Post, Dec. 17, 2008; Brownley, Three Convicted in KPMG Tax Shelter Case, NY Times, Dec. 17, 2008; Three Convicted, One Exonerated in KPMG Tax Trial, International Herald Tribune, Dec. 18, 2008; Glovin & Larson, Former KPMG Executives Get Mixed Verdict in Tax Case, Bloomberg.com, Dec. 17, 2008.  The defendants potentially face decades of jail time--up to 50 years for Ruble, and up to 60 years for Larson and Pfaff. Cassens Weiss, Ex-Brown & Wood Partner among Three Advisers Convicted in Tax Case, ABA Journal, Dec. 18, 2008.

For earlier discussion of the case on ataxingmatter, see KPMG and Liechtenstein; KPMG Tax Fraud Trial; KPMG Tax Shelter Case-Second Circuit Affirms District Court; KPMG Attorney Fee Litigation Back in the News; KPMG Tax Shelter Case--Another Guilty Plea; KPMG Attorney Fee Litigation--Judge Grants 13 Dismissals; Tax Shelter Litigation--KPMG, Deutsche Bank, Brown & Wood; and various posts linked therein.

 

Madoff's ponzi scheme tax losses and union workers' home losses

Wall Street has not had a good year (and of course, the taxpayers have borne the brunt of the resulting chaos).  Credit default swaps, for several years the darlings of the industry, have become a giant albatross around taxpayers' necks, especially through the AIG bailout.  Stocks have plummeted, as financial institutions' speculative hayday that funded unmerited, oversize executive bonuses (see, e.g., On Wall Street, Bonuses, not Profits, were Real, NY Times, Dec. 17, 2008) has crashed with the shaky mortgages at the foundation of so many CDOs and other securitizations, which of course means many individual homeowners are out in the cold.  

And then there's the Madoff scandal--a highly respected figure on Wall Street (he was once on the SEC advisory council) who has admitted to defrauding investors to the tune of at least $50 billion in a ponzi scheme that the SEC was warned about, investigated, and then decided, just a year ago, not to pursue.  The SEC has egg on its face (not the first time under Republican-appointed pro-industry commissioners), and investors have pockets with big holes rather than lots of gold coins. See, e.g., 

• SEC Release 2008-293, SEC Charges Bernard L. Madoff for Multi-Billion Dollar Ponzi Scheme, Dec. 11, 2008;
• Berenson & Enriques, SEC Says it Missed Signals on Madoff Fraud Case, NY Times, Dec. 16, 2008;
• Scheer & Westbrook, Madoff 'Tragedy' Said to have Escaped Investigation by SEC, Bloomberg.com, Dec. 16, 2008 (no inspection of books since registration as investment adviser in 2006);
• Neumiester, Fallout over Madoff Ripples through Washington, Wash. Post, Dec. 18, 2008; 
• Editorial, Swindle of the Century, Wash. Post, Dec. 17, 2008;
• Haughney, Madoff Scandal Shaking Real Estate Industry, NY Times, Dec. 17, 2008; 
• Greenwell, Area Jewish Groups Take a Hit Financially, Wash. Post, Dec. 17, 2008;  
• SIPC Chief: Madoff Falsified Books to Hide Losses, AP, Dec. 16, 2008;  
• Reuters, FACTBOX: Firms Exposed to Madoff Fraud (lists major firms with losses); 
• Reuters, Madoff Bad Omen for Fund of Hedge Funds Industry, Dec. 17, 2008.

And why, pray tell, can a guy who is caught stealing a piece of pizza go to jail for life in California on a "three counts and you are out" rule, while Madoff is not even in jail after stealing $50 billion even though he couldn't put up the bail set by the judge?  See Alex Berenson, Authorities Ease Madoff's Bail Terms, NY Times, Dec. 17, 2008).

What's the tax angle (gotta get that in somewhere, haven't I?)?  Investors who've lost money to Madoff get a chance for relief under the tax code.  See Donmoyer, Madoff's Victims May Recover Losses Through Tax Code, Bloomberg.com, Dec. 18, 2008.

Capital-gains taxes paid by investors [already too low, in ataxingmatter's opinion] may be refundable for 2005 through 2007, lawyers said. In addition, they said investors probably can convince the Internal Revenue Service they are victims of theft, which would let them deduct losses from their income taxes dating back to 2005. Any unused theft losses could be used to reduce tax liabilities for the next 20 years.

In other words, investors--the darlings of the Wall Street world and the darlings of the tax code because of their preferential rate on capital gains and other provisions like the charitable deduction for untaxed value rather than just investment basis--have an existing remedy that will likely provide substantial relief.  Another bailout, if you will, through tax code provisions--especially if the IRS permits the "theft" deduction.  (Note that theft losses would be deductible against ordinary income, usually taxed for wealthy investors at the top rate of 35%, whereas investors have been paying only the very low preferential rates when they have tax gains--nifty, huh?  Should the "theft loss" be able to trump the investment loss provision in this context to provide that benefit?  Seems like an answer based on a coherent interpretation of the Code provisions should be "no" in this context.)

Once again, worth pointing out a few things here.

The country has spent a lot of money and a lot of time talking about shoring up Wall Street (oops, the financial system).  There are various "escape valves" (such as the loss deduction) that provide relief of some sort for wealthy investors who have, undoubtedly, also lost money as financial institutions and other companies lose market capitalization and even go into bankruptcy.  But the country hasn't done much to get at the heart of the problem--providing relief to homeowners with mortgage debt that is driving them out of house and home, letting homeowners modify their mortgage loans in bankruptcy, and setting standards for the TARP money so that banks are not allowed to continue the high-falutin' lifestyle of huge bonuses built on speculative bets in the financial markets but rather are required to modify some loans and use the money to find a way to refinance some loans on better terms for the homeonwers, and, in the cases of subprime loans that were pushed on people who should have been offered better terms, requiring the banks to "eat" the difference and modify the loans to reasonable terms. 

For instance, bonuses, not quite as big as before but still extraordinary in scope, are still flowing on Wall Street. 

Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning. See On Wall Street, above.  (I might add--and let the taxpayers take the brunt of the damage in a nifty scheme for privatizing gains and socializing losses.)

Meanwhile, homeowners continue to lose homes.  Here's an anecdote to bring this down to the "real people" level.  I spoke at length with a union member in Detroit two days ago who told me of a  recent meeting of about 1300 union members.  Of the 1300, only a handful said they were not in danger of losing their homes to foreclosure!  More than half were already in foreclosure.  Many were facing imminent default.  And the rest were very worried that they would end up defaulting before 12 months passed, including the person with whom I spoke.  He'd bought a modest home several years ago, prudently basing his mortgage on his base pay without taking into account the extra pay he often received for overtime.  Yet he says most have already seen their take-home go down, and he expects their base pay to go down by at least one-fourth before this is over.  And if that happens, he simply won't be able to make his mortgage payments. 

Let's hope the new Congress reassesses the TARP program and makes modifications that should have been included in the beginning--harsher terms retroactively, along with much more stringent oversight, for the banks that get the money; much more consideration and problem resolution for the homeowners at the heart of the crisis.

Links

IRS comprehensive tax guide, publication 17.

OMB Watch, The Beginning of the End of Private Tax Collection? (commenting on, and providing link to, letter from Rangel and 13 other House Ways & Means representatives asking Obama to support ending use of private debt collectors, which is timely considering current contracts with two private debt collection companies are up for renewal in March 2009).

Dan Shaviro at Start Making Sense, That Didn't Take Long (regarding corporations' renewed push for a "repatriation" tax cut, even though the 2004 cut functioned as corporate welfare and did nothing to buttress job formation, as "expected" by those pushing the provision).

EconoSpeak, Goldman Sachs, Income Taxes and Transfer Pricing (noting that the investment behemoth, which has garnered a share of the TARP taxpayer funds, has also reported a drop in its tax rate from about 34% to 1%, mostly due to changes in the geographic mix)

TaxProf excerpt from Nicholas v. Comm'r (tax case challenging small portion of couple's routine charitable contributions, that would result in $712 additional tax liability if upheld)

Angry Bear's Divorced One Like Bush, CEO Math (a great cartoon that fits the auto bailout Congress's mentality)

Economic Stimulus-2009

Most seem to think that some kind of economic stimulus package early in the Obama Administration is a foregone conclusion.  The question is, what will it include?  Obama has talked a good bit about funding needed public infrastructure projects, which seems the right way to go, in my opinion.  But the House and Senate leaders all tend to see economic stimulus packages as times to turn their (and their hardest lobbying constituents') pet tax cut projects into law.  The danger, of course, is that the hard economic times will make it easier for corporate lobbyists and other special interest representatives to get their wish lists answered, even if they don't have much (or anything) to do with ensuring that the economy regains momentum.  This economic stimulus discussion, in other words, will just another lobbying opportunity, so bloggers and constitutents should follow the news assiduously and pipe in loud and often about the pros and cons of various proposals.

Pelosi, speaking for the House leadership, has suggested that a package of about $600 billion is needed, a third of which is likely to take the form of tax provisions.  On the other side of the Capital, finance committee chair Max Baucus is suggesting a $700 billion package with tax cuts making up about half. 

That sounds like further packages of accelerated and bonus depreciation, rate cuts for some industries, rate cuts across the board for corporations.   The Center on Budget and Policy Priorities looked at the congressionally favored "bonus" depreciation provisions as stimulus back in September, and concluded that "Bonus Depreciation Tax Cut Unlikely to Provide Effective Economic Stimulus."   Most of the "economic stimulus" tax incentives similarly don't cut the mustard--they are ineffective as simulus and tend to merely reward taxpayers for decisions or activities already undertaken.  While the huge tax cuts enacted under Bush were touted as the way the economy would be stimulated, they in fact didn't do much at all to ensure robust growth.  See, again, a CBPP study, How Robust Was the 2001-2007 Economic Expansion, updated Aug. 29, 2008.  I wonder if in fact the large tax cuts for those at the top of the income scale may have played a role in pushing us into our current economic mess--free flowing funds put together with rampant deregulation that together encouraged too much speculation without accountability. 

Remember, too, that while lobbyists are constantly clamoring for lower corporate taxes, there really isn't much to support a need for lowering corporate taxes, in spite of the propaganda being put out by groups like the Tax Foundation.  Corporate taxes in the U.S. are in fact much lower than corporate taxes in other developed countries.  In fact, the Center for Budget and Policy Priorities noted in a recent paper, Putting U.S. Corporate Taxes in Perspective, that U.S. corporations pay only about 13 percent of their income in taxes, even though the statutory tax rate is 35%.

So with the stakes so high, and the money, at this point, so precious, Congress should take great care in not just adding in more corporate tax breaks that aren't effective in turning the economy around.  I'd much rather see almost all the money invested in much-needed public infrastructure projects and education.

But then there's Orrin Hatch, Republican from Utah, pushing--guess what--a corporate tax giveaway that would benefit all corporations, whatever their situation.  It's a proposal to eviscerate the provisions on net operating loss carrybacks (a more modest version of which was broached by Harry Reid earlier this year, and something corporate lobbyists have been lobbying for as part of their wish list for years).  He would let corporations carry back current losses for 10 years or maybe even 15 to profitable times, getting refunds from the government, as compared with the current limited 2-year carryback provision.  See  Hatch Pitches Idea to Help Businesses Avoid Layoffs, Press Release, Dec. 16, 2008; Hatch Letter to Baucus and Grassley, Finance Committee, Dec. 16, 2008 (available on BNA); Lee Davidson, Hatch is Proposing Corporate Tax Refund, Deseret News, Dec. 16, 2008.  The result would be not much different from an outright bailout, except that there would be even less opportunity for attaching reasonable "strings" that might lead us to a more sustainable economic model than the credit-boozed variety that we lived off for the eight Bush years. The problem, of course, is that we've already found with the bailout money going to banks that just giving corporations more money doesn't do much to help the financial crisis. 

Note that Hatch's press release pitches it as saving jobs ("help businesses avoid layoffs").  I don't buy it.  The Center for Budget and Policy Priorities considered the NOL carryback proposal when it was proposed earlier this year, and concluded that it merely rewards past spending, but doesn't address the problems connected with economic downturns.  See Net operating loss provision under consideration in the Senate has low bang-for-the-buck as economic stimulus, CBPP, February 26, 2008; see also Matt Canham, Hatch Pushes for Tax Refunds for Struggling Firms, Salt Lake City Tribune, Dec. 16, 2008. I wonder, for example, if any of that windfall would go to current workers pensions or wages or new jobs or even scaling back layoffs or new investment in US production?  My guess is it would not--it would be paid to overly compensated managers and undeserving investors or used to fund expansion offshore. 

The Bailout and Notice 2008-83

The government continues to make its ad hoc remedies available for TARP recipients, in ways that are bringing into question the entire TARP program.  lack of congressional oversight continues to be a major problem with the program, which has many elements of cronyism and the kind of status difference for big banks versus auto manufacturing that apparently has little to do with the public interest.

Mark Jennings, a senior official in the IRS office of associate chief counsel (corporate), spoke on December 8 at a Federal Bar Association Section of Taxation breakfast about Notice 2008-83, according to BNA's Banking Report, 91 BBR 1089.  He stated that the benefit of the notice would apply to banks that had made acquisitions in prior years that remain open under the statute of limitations, thus making the benefit available for years prior to the current crisis for the benefit of any banks that made takeovers.  Jennings did reiterate that the notice as issued doesn't apply to foreign banks, and that it is a "temporary" provision, though just what "temporary" means if Congress doesn't act to nullify the notice (as proposed by Bernie Sanders) is not clear.  Jennings noted that  more guidance on using the Notice will likely be issued, if Congress doesn't take action on the various bills dealing with the notice in the near future.

More on the auto bailout--the GOP anti-union gang

Who was the guy who took a lead role in blocking the bailout plan for the Detroit automakers?  Bob Corker, Republican senator from Tennessee, a state that hosts both Toyota and Nissan US headquarters--and one that makes sure that it is very hard for any workers to be unionized--and the autoworkers at the Japanes and German plants, unsurprisingly, are not. 

Read more about the motivations of the anti-union Senate GOPers in Salon, Meet the GOP's Wrecking Crew, Dec. 13, 2008.

The fiercest opposition to the loan proposal -- and nearly a third of the 35 votes against ending debate on the deal -- came from Southern Republicans, and the ringleaders of the opposition all come from states with a major foreign auto presence. Not coincidentally, nearly all of those states -- except Kentucky -- are also "right-to-work" states, which means no union contracts for most of the employees at the foreign plants. The Detroit bailout fell victim to a nasty confluence of home-state economic interests and anti-union sentiment among Republicans.

Auto Bailout: are anti-union groups exaggerating workers' wages? will TARP come to the rescue?

The Senate bailed on the auto bailout, while big insurers and banks that have fattened themselves off of tax shelters continue to hog it at the trough.

A number of Senate Republicans didn't like the bill because it wasn't heavy-handed enough on auto workers.  They balked because they wanted "steep cuts in pay and benefits for members of the United Automobile Workers union in 2009."  See Andrews & Herszenhorn, White House Open to Using Bailout Money to Aid Detroit, NY Times, Dec. 12, 2008.   Republican-linked "think tanks" (really, ideology-tanks would be a better name) have been busy propagandizing on this issue by asserting that the automakers are handicapped by one problem--overpaid workers.  That, my friends, is bull.  The problem is that managers and investors have been short on vision for the future for years, while sucking the lifeblood out of corporations like the Big 3 and refusing to fund upfront the pension promises they make, and then forcing concession after concession whenever the hard times hit (while managers still get their fat cat bonuses and jet-pack percs).  The union has at least one decent wages and benefits for auto workers--too bad workers across the rest of the country are fed constant misinformation (and intimidation) about unions by the walmartization of the economy (big corps can rake in profits and avoid taxes by whatever means, including the "off-stating" state income tax shelter version of the federal income tax offshoring scam, but workers are encouraged to depend on the state for their health coverage).  So people on the street are saying--why help those auto companies when their workers are getting too high wages, as much as $75 an hour?   But it isn't true.  FactCheck.org does a good job of debunking the misleading propaganda in a recent Q/A: Do Auto Workers Really Make More than $70 an Hour?  No.  For the record, the average wage of the unionized workers is $29 an hour (and that will go down for any new hires, who will after recent concessions come in at lower pay scales).

The proposed bailout passed by the House was certainly problematic--first, because there seemed to be more focus on getting a "car czar" that could be heavy-handed with workers (but not firing the clueless execs) (see above) than on figuring out how to move the auto industry into the new age while keeping ordinary Americans employed, and second, because even here Congress saw fit to build in two tax provisions that were giveaways to banks and insurers (requiring the use of taxpayer money to make banks and insurers whole on the SILO tax shelters they sold to municipalities) and giveaway to takeovers/investors in the auto companies (undoing the provisions against abusive uses of losses by those that didn't incur them).  See Citizens for Tax Justice release.

Perhaps some light at the end of the tunnel, since the Administration may use the TARP funds to gain some time for the auto companies--and Congress--to figure out a better bailout.  See Andrews & Herszenhorn, White House Open to Using Bailout Money to Aid Detroit, NY Times, Dec. 12, 2008.  The White House admitted that “A precipitous collapse of this industry would have a severe impact on our economy,” and added, “It would be irresponsible to further weaken and destabilize our economy at this time.”  Id.  The White House should use the TARP funds, without trying to break the union while doing so.  And then Congress should come back under the Obama administration and put some serious thinking into how to quasi-nationalize this industry to get it working for the people--all the people.

 

Sklar case decided by Ninth Circuit

The Ninth Circuit has decided Sklar v. Commissioner, No. 06-72961 (9th Cir. Dec. 12, 2008), involving the question of whether payments to an Orthodox Jewish day school for Michael and Marla Sklar's children in 1995 could be deducted as a charitable contribution. The answer is no.  The court affirmed the Tax Court's decision that this type of payment is for the educational benefit rather than a charitable contribution, as it has traditionally been treated in a long line of cases.  The court noted that the arguments made by the Sklar's were "virtually identical" to the arguments made in an earlier case that sought to use the Scientology closing agreement to claim similar rights, and came to the same conclusions it had come to earlier.

For background, see

105 TC No. 14 (2005) (the tax court case affirmed by the December 12 decision) 

282 F.3d 610 (9th Cir. 2002) (the Ninth Circuit's earlier decision regarding the Sklar's claim in respect of the 1994 returns and the IRS closing agreement with the Church of Scientology)

Legal archive on Church of Scientology's battle with the IRS.