Stimulus Pork

Senator Max Baucus got $26 billion for private equity companies — the vultures that buy companies, load them up with debt, collect exorbitant fees, and then try to sell them to the unsuspecting public.

Senator Robert Byrd is getting $4.6 billion for clean coal.  “Clean, carbon-neutral coal can be a ‘green’ energy,” Byrd said.

What the hell other crap is out there?

Drucker, Jesse and Peter Lattman. 2009. “Senate Provision Would Let Buyout Firms Defer Taxes on Canceled Debt.” Wall Street Journal (28 January).

“Senate Finance Committee Chairman Max Baucus included language in the tax portion of the proposed stimulus package that would allow companies to defer income taxes triggered when they repurchase their own troubled debt at a discount. That would benefit a wide array of companies and industries, but would be a particular windfall to private-equity firms, which acquire companies using piles of debt in hopes of producing large profits for their investors. Amid the economic downturn, many of these deals have run into trouble and the firms are seeking to refinance them.”

“The Joint Committee on Taxation estimates the proposal would cost the government roughly $26 billion over the next three years.”

“A study by Boston Consulting Group found that, of 328 private-equity portfolio companies, roughly 60% had debt trading at levels considered “distressed”.”

“To stave off default, private-equity executives have made reduction of their companies’ debt a top priority. The companies are asking investors to swap their bonds for ones with lower values and longer maturities and also seeking to settle debt with cash. However, reducing debt levels can result in a big tax bill. For example, if a company issues $1 billion in debt, but later runs into trouble and exchanges it for new debt worth $600 million — or buys it back for $600 million — the remaining $400 million in cash is taxable income.”


2 comments so far

  1. Anne Lieberman on

    We have to consider energy sources not just in terms of environmental concerns, but also job creation. Every coal miner creates five other jobs (wind and solar just can’t compare) so I would not consider the monies for the coal industry as “pork.” This will truly stimulate the economy, create jobs where they are needed, lessen our dependence on Arab oil imports and contribute to our national security. I’ve never been a fan of Sen. Byrd, but kudos to him for this.

    • mperelman on

      I don’t know where the estimate of 5 jobs comes from, but creation of more jobs might also indicate inefficiencies. The wind and solar, if they create fewer jobs, might well be more efficient.

      The extra people could be put to work doing more productive jobs.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: