Despite massive profits, GM pays zero federal income tax

In news that will anger most people opposed to government bailouts of corporations, it was reported on Friday that General Motors paid no federal income tax for 2011. GM has earned more than $13 billion in profits since 2009, when it received a massive $49.5 billion bailout. In fact, GM recorded an impressive $7.6 billion in profits last year, up nearly $3 billion from the previous year.

"We did not pay federal income tax last year," said GM spokesman Jim Cain. The Detroit News, who broke the news on Friday, also quoted Cain as claiming GM would not have to pay federal taxes “for many more years.”

GM’s indefinite tax holiday is the result of the automaker’s 2009 bankruptcy. GM reported $18 billion in losses when it originally filed for bankruptcy, a figure that it can now use to cancel out post-2009 profits. Detroit News indicates that GM was granted permission by the U.S. Treasury Department to offset its profits with previous debt. In effect, the Detroit-based automaker would have to post a $1 billion profit for 18 straight quarters before having to pay the federal government a single cent in taxes. Despite not having to pay any federal tax, GM argues that pays a worldwide tax rate of 13 percent, as well as a “significant” amount in state tax.

GM is not the only auto manufacturer to avoid paying federal taxes. The Chrysler Group is set up as a limited liability partnership, which enables it to avoid paying federal taxes. Due its structure, the company pays state and worldwide taxes, while its owners pay federal tax. Annual reports indicate that Chrysler paid roughly $200 million in taxes in 2011, including only $6 million to the U.S. Ford Motor Co. has also avoided paying federal taxes in recent years due to its $30 billion profit loss between 2006-2008. Ford did, however, pay $268 million in worldwide income taxes in 2011 on income of $7.8 billion.

The Treasury Department's decision to grant GM and Ford federal tax relief is not exclusive to automakers. The Treasury has allowed multiple companies that have received government bailouts to maintain tax loses over the past several years. Most notable of these companies were “too big to fail” institutions like AIG and Citibank. The practice has cost the Treasury more than $100 billion in tax revenue.

Source: The Detroit News