Definition of Insanity

Definition of Insanity – Repeating the same behavior and expecting different results. 

 

That is now the definition of the American auto makers. 

 

Having faced (and received) government bailouts in the 1970’s, one would think that they would have taken all steps necessary to prevent that catastrophe from occurring again. 

 

But complacency, arrogance and greed are  deadly sins that corporations cannot afford. 

 

Management refused to plow back profits into the company to make their products more efficient and cost effective, and their plants more flexible to react to change.  Labor maintained a high level of pay which then required that Chrysler products must be sold at minimum prices. After building vehicles that were not what people wanted, that evidenced lower quality then competitors in an effort to boost profits, and refusing to make affordable vehicles, companies like Chrysler found themselves staring at bankruptcy, shutting down plants and laying off workers.  Hat in hand, they went to the Federal Government and the state of Michigan. 

 

After weeks of rising pressure for a federal fix for the multiplying problems of Chrysler Corp., Treasury Secretary G. William Miller produced—and Jimmy Carter approved —a Government bailout. It was designed to prevent the nation’s No. 3 automaker (1978 sales: $13.6 billion) from sliding into a bankruptcy that could have put many thousands out of work and sent a shudder through U.S.

 

Under Jimmy Carter, the federal government and Michigan approved the bailout, in the form of loan guarantees. However, the loans required concessions from the Chrysler workforce, in the amount of more than $400 million. Under the slogans, “We are all in this together to save our country,” and “Buy American,” the UAW leadership approved the concessions.

 

Days later, the state of Michigan cut welfare grants, insisting that the state budget was hit by the Chrysler bailout. The following year, Chrysler closed more than 30 plants in the US, laid off about 45% of both its blue collar and white collar workforce, or about 65,000 people. What happened to the brilliant plan to bail out Chrysler? It cost those same workers their jobs anyway, lined the pockets of top management and top union officials with large profits, and actually cost low-income persons not involved in the automotive industry their welfare subsidies. 

 

The Chrysler subsidy violates two political principles that have been highly important in this country: the principle that individuals are responsible for themselves and the principle that the government should treat people equally. It violates individual responsibility by making Chrysler stockholders and employees into wards of the state and taxpayers into servants of the state. It violates equal treatment by bailing out a particular firm.

 

Here’s a thought: Repeal the laws that force employees to join unions. Individual employees might be willing to work for less than they are now being paid in order to keep their jobs, but they are not allowed to make that kind of bargain because the United Auto Workers (UAW) union has a monopoly on bargaining for most Chrysler employees. It is illegal for any worker to work for less than the wage the UAW has bargained for. If compulsory unionism were repealed, Chrysler would not be in as serious shape as it is in once again.

 

Should the government force taxpayers to subsidize a company whose products do not meet the market test? The answer becomes clear: No. Why should taxpayers have to pay to keep a firm in business? As consumers and producers, they have shown that they do not want to keep it going. Consumers are not willing to pay enough for Chrysler’s products to cover the company’s costs; producers–including suppliers to Chrysler and Chrysler employees–are not willing to sell their goods and services at a cost below Chrysler’s projected revenues. Consumers and producers have spoken, and that should be the end of it. 

 

Tell your government representative that those who do not learn from history are destined to repeat it.  And we cannot afford to do so this time around. 

 

Much of the history of the original bailout can be found at the Cato Institute.  

Donate Your Car To Charity

You have received these offers in the mail and seen them in the newspapers.  “Donate your car to charity and receive a tax deduction!”.  Are they for real?  For the most part, yes.  Many not-for-profits would be thrilled to have a donation which will further their mission.  A donation worth possibly several thousand dollars is a windfall to many charities.

 

Is it really tax deductible? Again, yes, for the most part.  If you itemize your taxes.  There is some figure that is the correct amount to enter on your tax return as the value of your donation.  But what is it? 

 

Originally, the IRS allowed a taxpayer to donate a car to charity and deduct the “fair market value” of the vehicle.  As you can imagine, this got a bit out of hand.  The taxpayer’s interpretation of “fair market value” seemed to be a bit higher than the IRS’s interpretation.  People were deducting the full amount that a car dealer “might” get reselling the vehicle at full retail.  Not quite what the government had in mind. 

 

The charity certainly did not get the benefit of anything near to the taxpayer’s estimate of value.  Most charities use a service or “middleman” to sell the vehicle, and after paying a commission, the charity is left with a small portion of the originally intended donated amount.  This method usually results in the lowest percentage of the sales price to the charity – sometimes as little as 20% of the sale price.

 

In January 1995 the IRS changed the rules so donors need to do some research and paperwork before figuring the value of their donation. 

 

1)                   The charity must have a valid 501 (c)(3) tax status with the IRS. Any qualified organization should be happy to provide you with a copy of their certificate verifying this tax status. 

2)                   Speak with someone at the charity to see if a donated vehicle fits with their needs.  Some will actually use the vehicle for their operations instead of selling it for the funds.  A maintenance van for a charity which operates subsidized housing, a hatchback or mini-van for a program which delivers meals to home-bound residents, etc.  Some will prefer to sell the vehicle for the cash to further their operations.  Some may prefer not to go through the steps necessary to sell a vehicle.  Find out what their needs are to ensure that your donation makes the most positive impact. 

3)                   If your car is valued at more than $500 your deduction is limited to the charity’s Actual Selling Price.  The charity is obligated to provide the donor with a statement of sale, which the donor is required to attach to their tax return (the donor is not entitled to know the deduction amount prior to donating the vehicle).  This will almost always be substantially lower than the donor’s intended donation, especially if a “middleman” service if involved.

4)                   If the charity decides to keep the vehicle and use it for their own needs (maintenance, delivery of goods and services, etc), the donor must determine the fair market value of the deduction.  But be warned, the government believes that the fair market value will likely be substantially different (read, “lower”) than the “Blue Book” value.  If your vehicle donation is valued at over $5,000 you must obtain a written appraisal by a qualified appraiser no more than 60 days before you donate the car.  Most donors don’t take into account the condition of their vehicle, and the value of any repairs necessary, which will lower the deductible value.  Edmunds TMV Used Vehicle Appraiser is a good tool for estimating the value of your donation. 

5)                   For any donation over $250 you must receive from the charity a written acknowledgement, detailing the services given and received for this donation.  See IRS Publication 4303 for detailed information on this statement, which should be retained for tax purposes. 

6)                   State law requirements for vehicle titles – check with your state DMV about the process of transferring the title of your vehicle to the charity.  And don’t forget to remove your license plates, unless state law requires otherwise.

7)                   Check with your CPA about the validity of any deductions.  It’s not just as simple as claiming a charitable donation.  Before filing an erroneous tax return, get professional, qualified advice.  Doing good should not hurt!

 

Of course, if you are so inclined to make a donation to charity, there is another route – sell the car yourself and donate in the form of a check.  You are more likely to get closer to “fair market value” through this sale method. It’s more straightforward for your taxes as well. 

 

Whichever route you choose to take, we wholeheartedly encourage and applaud your community spirit!