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October 11, 2012

So Much for Economic Patriotism

Having bilked both American taxpayers and their creditors of over a half billion dollars (!), Solyndra would like the IRS to give them one of those pesky corporate tax breaks the President is always complaining about:

The Internal Revenue Service urged a bankruptcy judge to reject solar panel maker Solyndra LLC’s bankruptcy plan Wednesday, saying it amounts to little more than an avenue for owners of an empty corporate shell to avoid paying taxes.

“The undeniable conclusion is that tax benefits drive this plan,” attorneys for the IRS wrote in a bankruptcy pleading.
Arguing that the bankruptcy court ought not confirm a plan “whose principal purpose is tax avoidance,” attorneys said in filings in U.S. Bankruptcy Court in Delaware that the tax breaks would be worth more money than funds set aside for creditors.

Taxpayers are on the hook for more than a half-billion dollars after the company filed for bankruptcy last year, just two years after winning a loan guarantee from the Department of Energy.
What’s more, government attorneys said that as far back as 2010, Solyndra owners had “planned meticulously” to be able to use Solyndra’s net operating losses to offset future tax liabilities.

“The only reason for the shell corporation to exist post-confirmation is to enable its owners to exploit these tax attributes, which would be lost in liquidation,” the IRS argued in court papers.


Maybe instead of raising taxes, the administration should try collecting the taxes already owed by corporations that received stimulus funds:

Thousands of companies that collected more than $24 billion in stimulus money from the federal government owe hundreds of millions of dollars in back taxes, a federal investigation has found.

At least 3,700 contractors and nonprofit groups that took in stimulus funds are tax deadbeats, the Government Accountability Office said in a report conducted for the Senate Permanent Subcommittee on Investigations ahead of a Tuesday hearing.

In all, the companies owed at least $757 million at the end of fiscal 2009, the GAO found.

The number of companies and the total dollar amount owed may be even greater, since the GAO probe examined only three-quarters of the 80,000 groups that received stimulus funds. In all, $275 billion in stimulus money is intended to go to grants and contracts. Of that, $200 billion had been paid out by late March.

“It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else,” said Sen. Tom Coburn (R-Okla.), the subcommittee’s ranking member. “That such a huge amount of the stimulus money went to known tax cheats should be a wake-up call for Congress.”

It would seem that under Obama, we're not all playing by the same set of rules after all. Who knew?

Posted by Cassandra at October 11, 2012 08:08 AM

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Comments

It's a pretty great racket: get a bunch of federal money to set up a corporation whose primary function is to lose a ton of money, thus accumulating net operating losses that can be used to zero out real profits from a real corporation. I mean, you can always create net operating losses by losing money, but who wants to use his own money to do that?

Posted by: Texan99 at October 11, 2012 10:34 AM

But...but... think of all the jobs that were saved or created.

At Sesame Street, a mere 1 million dollars of stimulus funds created a whopping 1.47 jobs! It's a loaves and fishes thing - you wouldn't understand.

Posted by: Barack Obama at October 11, 2012 10:36 AM

"It would seem that under Obama, we're not all playing by the same set of rules after all. Who knew?"

OoooOOOOooooohhhh......
OOOOooooOOOoooooohhhhhh.....
Miisteeeerrr Kottiieeerrr

Posted by: Arnold Horshack's Spectral Hand at October 11, 2012 10:59 AM

Bailout=stimulus. It all comes back to the Bush junta.

Romney was right. Again.

Posted by: Carolyn at October 11, 2012 11:12 AM

"It would seem that under Obama, we're not all playing by the same set of rules after all. Who knew?"
It looks like da BLS, or BS for short, has taken receipt of the memo...

Save da horse head for latah.

Posted by: Good Fellows wit numbahs at October 11, 2012 12:16 PM

No corporation that owes taxes should be allowed to compete for government business much less be GIVEN taxpayer money to waste. This is lunacy. The rest of us would be in jail if we didn't pay our taxes, these guys got billions!

Posted by: TexasMom2012 at October 11, 2012 12:28 PM

I've heard the wags compare "Obama's Rules" to those used in "Calvinball" (I.e., "make 'em up as you go"), but I always thought that it was just an exaggeration. That is, until now.

Posted by: spd rdr at October 11, 2012 02:38 PM

No corporation that owes taxes should be allowed to compete for government business much less be GIVEN taxpayer money to waste.

I agree with the sentiment as far as it goes. But these problems would disappear if we simply did away with the corporate taxes altogether.

The corporate tax bill, such as it is (recall GE), is just a cost center to that corporation. The business' final customer pays that tax in the form of prices elevated to cover the cost, just as we pay prices adjusted upward to cover other costs, like labor, inventory, R&D, etc.

Ultimately, we're being taxed twice by the existence of corporate taxes.

Eric Hines

Posted by: E Hines at October 11, 2012 03:22 PM

Well, the argument against is that rising costs will not cause the price to rise because customers don't care about producer's costs. The customer isn't going to pay more for a good just because you paid more than the selling price to produce it.

Every person that is selling a home that is worth less than when they bought it either understands, or is learning that. Sunk costs are sunk.

The problem is, that only applies to existing stock.

It neglects the willingness of producers to manufacture that good going forward. And shortages raise prices. Production will decrease until profit margins have recovered. If it cannot be, production will cease completely and they find something else to produce that can be sold at an acceptable profit margin.

Posted by: Yu-Ain Gonnano at October 11, 2012 04:17 PM

My first work as a bankruptcy lawyer fell during the big real estate crash in Texas in the mid-1980s. I had a terrific client who patiently explained to me how multi-family housing prices crash and recover. The price of single-family housing (rented or bought) had dropped enough to be a real competition to the apartment housing. When apartment vacancies reach a certain point, existing complexes are very hard-pressed to make their mortgages, because they have to drop the rents in order to keep occupancy up. Of course in this situation no one builds new apartment housing. Gradually, if the population grows or the economy improves, demand for apartments increases. The apartment vacancy rates get driven back down and rents drift back up, until they reach the point where new builders can see the sense of starting new projects, and then prices stabilize again. If you have reasonably good forecasts for the growth of the renting public, you can put together a reliable forecast for when your complex is likely to be able to catch up on its mortgage, which can become the basis for a chapter 11 plan that your creditors may support.

You can shut that recovery process completely down by freezing prices or rents.

Posted by: Texan99 at October 11, 2012 04:34 PM

Well, the argument against is that rising costs will not cause the price to rise because customers don't care about producer's costs.

No, but that's not the point. Lowering costs provides room for lowering prices in a competitive market. Housing or grocery stores, the duration of the inventory only affects the cycle time of the prices, not the price fluctuations themselves.

Eric Hines

Posted by: E Hines at October 11, 2012 05:41 PM

I've heard the wags compare "Obama's Rules" to those used in "Calvinball" (I.e., "make 'em up as you go"), but I always thought that it was just an exaggeration. That is, until now.

Ah, Columbia MD. Still living in an alternate universe :p

Posted by: Cassandra at October 11, 2012 07:01 PM

"Ah, Columbia MD. Still living in an alternate universe :p"

Way back when it was said that Columbia was for clones.

I see that Columbia has changed with the times. Now appears to be for drones.

Posted by: Hank at October 12, 2012 02:26 AM

What better way to lead by example than to have the tax cheats in your own adminishtration (deliberate misspelling...I loathe the adding of an h) pay their fair share?

Of course, I am chirping to the wall, but I am still chirping.

Posted by: Cricket at October 12, 2012 09:21 AM

Lowering costs provides room for lowering prices in a competitive market.

Again, the argument against is that prices would not come down as all that would do is reduce profit (and those greedy capitalists would *never* do that). Again, this is true if the available stock is static. There is only X number of units and there will only ever be X number of units.

If you are already selling all X units there is no pressure to lower prices.

The point of lowering prices is that you can now sell X+Y units and that the increased number make up for the decreased margin.

Liberals take it as axiomatic that production is a (or nearly) constant.

Conservatives take it as axiomatic that it isn't.

Posted by: Yu-Ain Gonnano at October 12, 2012 11:37 AM

"The point of lowering prices is that you can now sell X+Y units and that the increased number make up for the decreased margin."
A strategy currently employed at GM. The management team, consulting with the POTUS has determined that selling Volts at a $150K loss per unit can be made up in volume sales.

Is it any wonder that “the private sector is doing fine.

Posted by: Alstair Cooke's cousin Cletus at October 12, 2012 11:57 AM

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