The collapse of Detroit’s giants is a tragedy, affecting tens of thousands of current and former workers. But the best way to offer them support is directly, not by gerrymandering the rules. The investors in these firms are easily portrayed as vultures, but many are entrusted with the savings of ordinary people, and in any case all have a legal claim that entitles them to due process. In a crisis it is easy to put politics first, but if lenders fear their rights will be abused, other firms will find it more expensive to borrow, especially if they have unionised workforces that are seen to be friendly with the government.
It may be too late for Chrysler’s secured creditors and if GM’s lenders cannot reach a voluntary agreement, they may face a similar fate. That would establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?
and his effort to crack down on business taxes:
No one doubts that America’s corporate-tax system is a Byzantine mess of high statutory rates and oodles of exemptions. But much of that complexity is caused by the divergence between America’s system of taxing its firms (and citizens) on their worldwide income and the territorial system used by most other countries. Mr Obama’s proposals, particularly his partial reversal of firms’ ability to defer taxes, would add yet more complexity. Nor is there much evidence that they would boost domestic job creation, as the administration claims. In fact, by raising the tax bills of American firms and putting them at a disadvantage beside their foreign peers, Mr Obama’s tax changes may reduce domestic job creation and even induce companies to move offshore.
In truth this plan is less an economic downpayment than a political one. Mr Obama needs more tax revenue, and corporate America’s foreign profits are an appealing pot of cash.