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This will be the last issue of Steinberg Talks Tax™ in 2008. Given that the holidays are already somewhat less than merry, I won’t pour on more of the continued negative economic indicator news. I will, however, briefly mention the auto bail out, what some commentators are saying about the crisis, and, what tax changes may be implemented by the Obama administration.


• President Bush Acts: Following Congressional rejection of a proposed $25 billion auto bail out President Bush announced a $13.4 billion bridge loan to the big three auto makers. The loan will drain the balance of funds from the congressionally approved first ½ of the $700 billion TARP fund.

• Agreement: The terms of the deal will start the auto companies on a race to restructure within the next 101 days, by a March 31 deadline, to prove their viability. The terms are broadly generous requiring the companies to negotiate concessions from workers, suppliers, dealers, banks and bondholders that will allow them to satisfy a mushy “viability” touchstone, that is, to show that they are taking steps to become “viable”. The Obama administration will be left to apply the test and play a large role in determining the future of the U.S. auto industry.

• Contentions: Already, there are grumblings from some in congress and the United Auto Workers about the concessions that workers should be asked to accept or are willing to accept, respectively.

• What if? If the companies fail to demonstrate that they are becoming “viable” by March 31, they must return the bridge loan funds and won’t qualify for an additional $4 billion in funding. Notwithstanding, the rescue is just the first tranche in federal assistance to the auto companies, some or all of which, may yet end up in bankruptcy.

• Start you engines: The race to find linchpins to viability is on but 101 days is a very short horizon for implementing major initiatives.

• Complications: Another complication revolves about how the financing divisions of the big three like GMAC will figure into the aid equation. Expect to see many twists and turns and ups and downs in this major sub-prime sub plot.

• TARP Phase II: Also looming large, beyond the auto drama, is the hot battle about whether and when the second $350 billion of the TARP fund will be released. Treasury Secretary Paulson wants the funds now but neither congressional Democrats nor Republicans is very happy with him at this juncture over his failure to heed requests to implement a homeowner rescue package with some of TARP funds.


• President Bush: “But, these are not ordinary circumstances.” The statement made while explaining his decision to extend a rescue to the auto companies, may be the understatement of the year.

• President-elect Obama: “The American people’s patience is running out.” It will be interesting to see how long his honeymoon of popular support lasts as American wallets get even thinner.

• An un-named Manhattan woman, “It is the age of the empty suit.” Her remark, reported by Peggy Noonan, followed the announcement of Bernard Madoff’s arrest and referred to the absence of competent oversight by those charged with that responsibility.

• Peggy Noonan of the WSJ, “Those who were supposed to be watching things, making the whole edifice run…just somehow weren’t there.”

• U.S. Transportation Secretary Mary Peters, “The fact that the trend (Americans driving less miles) persists even as gas prices are dropping confirms that America’s travel habits are fundamentally changing.”

• David Bonior, an Obama auto industry advisor, speaking on how far U.S. equity involvement in various industry sectors should grow, “”The times and the planetary crisis demand it (an industrial policy). The trick is to do it within the construct of capitalism – enlightened capitalism.” We shall hope that the policies turn out to be enlightened.

• Treasury Assistant Secretary Neel Kashari, in hearings before House Financial Services Committee, “We don’t have the luxury of first building the operation, then designing our programs, and then executing them. Given the severity of the financial crisis, we must build…design…and execute them-all at the same time.” In other words, they are operating by the seat of their pants and adjusting programs on the fly.

• Chuck Ransom, former Florida head of Chase Manhattan Private Bank, presently connected with Tiger 21’s Florida peer-to-peer investment groups, “Whether you have $100 or $100 million, sometimes you just need someone unbiased to ask, ‘Are you sure that’s the best place to be putting your money.” This is what I try to encourage my clients to use me for. Remember brokers and money managers can be conflicted by their desire to either earn a commission or keep you invested. In times like these, it is especially true - as portfolios build up losses brokers and advisors may not wish to have customers recognize as permanent. But, there is huge specific company risk out there right now even if the market has hit bottom which is by no means certain.

• California State Treasurer, Bill Lockyer, “California’s fiscal house is burning down.” His statement reflects the fiscal dilemma many states now face hit in rising foreclosures, debts, pension obligations and the inability to raise money in bond markets.

• Christopher Wood, author of “The Bubble Economy, Japan’s Extraordinary Speculative Boom of the 80s and the Dramatic Bust of the 90s, “ “The securitize nature of this credit cycle, combined with the nightmare levels of leverage embedded in the products dreamt up by the quantitative geeks, means this is a horribly difficult issue to solve.” Mr. Wood believes our fiat paper-money system (President Nixon ended the link of currency to gold in 1971) will collapse when foreign investors flee the dollar. He believes we will then return to a gold backed currency. I am not so sure (see Special Edition: Primer on the Sub Prime Mess, Steinberg Talks Tax™ Vol. 2, No. 3).

•, November 26, 2008, editor, “The current credit crisis is not a temporary shock like the September 11, 2001 terrorist attacks, which briefly severed the financial system’s internal pluming. Rather, a radical reassessment of what constitutes acceptable levels of capital, leverage and interest-rates (RSS: meaning risk) is underway.” This is not just another bear market.

• Former Secretary of State, George Shultz on his optimism for America, “There is every reason to have confidence (in) the ingenuity, the flexibility, the strengths of the national economy (and) human talent.”


• He would have the two top individual tax rates revert to 36% and 39.6% instead of the present 33% and 35%.

• He would continue the present 10, 15, 25 and 28% individual tax rates would remain.

• He would offer a “Making Work Pay tax credit to offset payroll taxes for lower income individuals with a $500 cap.

• He would extend the practice of dealing with the Alternative Minimum tax unintended impact on middle class individuals by continuing the practice of an annual patch but perhaps making it permanent.

• He would increase tax on capital gains from 15% to 20% for individuals earning over $200,000 and families earning over $250,000.

• As a short term stimulus he would offer a $3,000 refundable credit to businesses during 2009 and 2010 for each added full time U.S. employee.

• He would establish the estate tax exclusion at $3.5 million per individual and a top tax rate of 45%.

• Likelihood: It is highly likely that there will be some tax legislation in 2009 although it may differ from the President-elects proposals after negotiating with congress.

• Effective date: Historically, tax legislation of this kind has been retroactive to January 1 but that is no sure bet.

• Already passed: Congress has passed the “Worker, Retiree and Employer Recovery Act” which, in part:

o Extends 50% bonus depreciation through 2009.

o Extends elective expensing for small businesses, in lieu of depreciation, up to $250,000 through 2009.

o Places a one year moratorium on required minimum distributions from IRAs in 2009. This does not help for 2008 and minimum distributions will have to be made by 12/31 based on the higher 12/31/07 value of the account.

My advice: Count your blessings. Make your merry very; and, if you must commit folly make it jolly.

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© 2008 by Robert S. Steinberg, Esquire, Miami Florida
Articles and consultations authored by attorney reflect the state of law as of the date of their writing. The laws change daily. Users of this site are advised to consult attorney regarding their situation.
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