Last Thursday, the U.S. House of Representatives slapped retroactive taxes of up to 90% on bonuses for employees earning more than $250,000 at companies which received more that $5 billion of government aid. The Senate is also working on a 70% tax on bonuses at companies beyond the financial sector. By Friday howls of protest had gone up, some justified (about the arbitrary design of the tax and its unintended consequences) and others not so much. In the latter category fell those who are happy for the banks to be bailed out but unhappy to take any share of the responsibility. "Is this Sweden?" some screamed (on Facebook and other online forums), a reference to the Nordic land's high tax rates.
Well, not really. Sweden has actually refused to bail out one of its biggest companies, Saab Automobile. In February, Saab's owner, General Motors, set out a plan to phase out the brand by 2010. Most of Saab's 4000-odd Sweden-based workers come from Trollhättan. The centre-right government does not want to set a precedent by bailing out one company, even as important as Saab. The government is annoyed that GM has let Saab stagnate and is now trying to pass on the costs to the Swedish taxpayer. In the absence of a viable business plan, the government is saying no (or nej, as the Swedish case may be).
But the Swedish government's bailout package of SKr5 billion for the automobile industry (which employs 150,000 in a country of 9 million) is not that pristine either: to qualify for state aid, companies like Saab would have to shift production back to Sweden from other lower cost countries. Swedish jobs for Swedish people, etc. etc. Haven't we heard that before?
Coming (back) to America, the Detroit automakers are meanwhile happily using bailout cash to offer discounts and low-interest loans to attract customers. Such strategies are aimed at keeping the assembly line moving and maintaining market share, even though they hurt profits as well brand value. Chrysler is now giving incentives of up to a fifth of the average sticker price and GM is planning more promotions. In short, the strategy is: take public money (already $17.5 billion and more being demanded), pay it back to the public (with discounts) to increase sales, pretend commercial viability, and do little about real restructuring. The auto companies might be in for a nasty surprise when the public realises this. More punitive taxes? Watch this space.