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Put GM Stock In Voting Trust For Taxpayers
Investor's Business Daily
June 10, 2009
By Ernest S. Christian and Gary A. Robbins
Never mind that the government and UAW are historically
among the main causes of General Motors' demise. The fact
is that these two co-partners will now own the company - and
Washington will be in the automobile business in a big way.
Even President Obama seems a bit discomfited with his latest
addition to the government's portfolio - not necessarily on
ideological grounds but because of the political risk in nationalizing
a major American business, especially one that has a familiar
presence in nearly every town in America.
"Who's next?" shocked voters may ask. A good question.
The president insists that government is a reluctant owner
of GM, forced into taking a 60% block of stock in order to
protect the "taxpayers" who have made a $50 billion
investment in the company. He says he does not intend to interfere
with the carmaker's business. But it strains credulity to
think that Washington will keep its hands off its very own
auto company.
The meddling has already begun. Obama has decided the nationalized
company must remain in Detroit. Pure politics. Predictably,
members of Congress are trying to prevent GM from cutting
costs by closing underperforming dealerships in their districts.
And these are only tidbit samples of the ongoing political
plundering of GM that will get worse the longer the government
owns the stock.
The president says government ownership will only be temporary.
But it's far from clear how, when, whether and to whom the
Obama administration might at some point sell all or part
of its stake in GM. If government-owned GM survives at all,
the likelihood is that it will remain a weak ward of the state
for a long time.
But what if GM were to become profitable and begin to show
signs of an escalating stock price? Who would get this plum?
And at what price? Or would the administration decide to keep
GM as a continuing demonstration project to show the merits
of state-run capitalism?
In truth, there's no reason - other than acquisitiveness -
for the administration to own and control GM at all. Its block
of shares should go into a special type of statutory voting
trust for the benefit of the "taxpayers" - the people
whose investment the president says he wants to protect.
The independent trustees would owe a duty to the taxpayers,
not to the Obama administration. These fiduciaries would be
required to vote the stock in ways that in their judgment
best serve the financial interests of the shareholder-taxpayers.
The trustees, as well as the officers and directors of the
company, would also be directed by statute to report to the
attorney general and to the public any attempt at political
interference.
At such time as GM had met specified minimum standards for
financial viability, the trustees would by statute hold a
public auction of the stock and distribute the proceeds to
taxpayers. If better for the taxpayers in light of prospects
for future share-price appreciation, the trustees would have
the option to distribute the stock in kind, either directly
or to the recipient's IRA.
In either case, stock or cash would be divided among taxpayers
in proportion to income taxes paid.
There are many variations on the trust theme - including a
worthwhile approach sponsored by Sens. Lamar Alexander, John
Kyl and Bob Bennett.
The bona fides of the Obama administration and the Congress
should be put to the test. Are they really reluctant owners,
anxious to put GM back in private hands? Or is GM a vital
beachhead from which to gain control, first of the auto industry
and then of the highly interrelated manufacturing sector as
a whole? Is Obama's concern about "taxpayers" rhetorical
or real?
Would he allow the GM stock (or proceeds) to be distributed
mostly to the comparatively small group of citizens who actually
pay nearly all the federal income tax and whose money the
government is spending? Or would he insist that distributions
be made equally to everyone - including the ever larger group
of voters who pay no income tax at all?
It is a mistake for government to acquire GM stock in the
first place. But having decided to do so, it would be an even
greater mistake to reject an obvious modification of the ownership
structure that not only protects the taxpayers but also protects
the free enterprise system from political domination, and
guards against scandals.
Christian and Robbins are, respectively, executive director
and chief economist of the Center for Strategic Tax Reform
(cstr.org) in Washington, D.C.
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