GM lobbies for $7-billion tax waiver

06 February 2009

After having begged relentlessly for the past six months for a bailout, and receiving a $13.4 last month from former President George Bush, the world's largest automaker, General Motors is now lobbying with lawmakers to waive its upcoming $7-billion tax bill.

GM is reported to be lobbying with select Congress leaders to waive its tax liability of approx $7 billion, which it will incur as a result of its restructuring by offering equity in exchange of debt and VEBA healthcare obligations for union workers.

GM wants to reduce its unsecured public debt from $27.5 billion to about $9.2 billion in exchange for equity and in a separate equity exchange, to reduce obligations to the union retiree health fund by almost 50 per cent to $10.2 billion.

The equity-for-debt exchange is part of the plan to ensure the company's long term viability, but under US corporate tax law, the debt-swap is still liable to attract tax as it is treated as income.

The automaker has been working behind the scenes, asking lawmakers to amend the $819 billion economic stimulus bill, (See: Obama visits Republicans to push relief bill) where the tax liability of $7 billion can be entirely eliminated, as it it would jeopardise its its restructuring, which it had agreed to with the US Congress in exchange for the $13.4 billion loan package. (See: Bush offers $17.4 billion to bail out GM, Chrysler)

If the waiver is not granted, then the automaker will have to return $7 billion from the $13 .4 billion bailout money it received last month, but if the government does grant the one-time waiver, it will be setting a precedent for other companies to ask for similar benefits, especially during the economic downturn.