How About a Market-Based "Bailout" for Auto-Makers?

WASHINGTON - Government bailout or bankruptcy for automakers? How about the third option presented in an op-ed in the WSJ's OpinionJournal today by Congressman-elect Jared Polis (D-CO)?

The incoming congressman-elect from Colorado has a savvy business background as the founder of proflowers.com and bluemountain.com and has this idea which certainly has merit:

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive...