Obama and Congress Facing New Challenges, While the Auto Industry is Dealt Another Blow

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Officials on Tuesday said the Obama administration is trying to find ways to sidestep Congress in order to prevent American companies from reincorporating overseas to avoid paying U.S. taxes, Josh Lederman reports, Obama Seeks Executive Ways To Limit Tax Inversions. President Barack Obama has condemned so called tax inversions as unpatriotic and urged Congress to stop them, but Republicans and Democrats disagree about the best solution making congressional action unlikely. Messing with inversions without Congressional approval would further open up Obama to charges he’s unilaterally rewriting tax codes as House Republicans are already suing Obama for exceeding his authorities. Treasury Secretary Jacob Lew, last month, stated that the administration had examined the tax code and without new laws its option were limited. However, on Tuesday, the Treasury Department said in a statement: “Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place.” As Lederman explains it, “In an inversion, a U.S. business merges with or is acquired by a foreign company in a country with a lower tax rate, allowing the company to lower its tax bill. Frequently the companies maintain their U.S. headquarters and operations, and the U.S. entity often maintains control of the company. Obama argues that amounts to companies attempting to choose which tax laws they want to follow — a luxury not granted to individual taxpayers.” Both parties generally agree that inversions are a problem, but do not agree on the causes and the solutions. While Democrats want to make it harder for U.S. firms to reincorporate overseas, Republicans argue that Congress needs to lower the corporate tax rate to keep businesses in the U.S. The united States has the highest corporate tax rate at 35 percent in the industrialized world and taxes income that’s earned overseas and brought back to the U.S. Sen. Elizabeth Warren, D-Mass., one of the three Senator Democrats who wrote to Obama Tuesday urging him to take immediate executive action on inversions, stated, “It would be an important first step toward treating companies that renounce America the same way we treat people who renounce America — as freeloaders who get cut off from other benefits.” A House Speaker John Boehner spokesman said Tuesday that Obama should work with Congress on adding inversions rather than action on his own, while the U.S. Chamber of Commerce warned that actions taken by Obama could make the situation worse. The Congressional Research Service confirmed that 50 U.S. based companies have merged with or acquired foreign businesses over the past decade in inversions.

Meanwhile, Congress according to a Washington Post/ ABC News poll released Tuesday, found that 51 percent of Americans disapprove of their own congressional representative, Ariel Edwards Levy reports, A Record Number Of Americans Don’t Like Their Own Member Of Congress. This is the first time in a quarter century that the poll has had a disapproval rating higher than 50 percent and even higher than the 47 percent disapproval rating of last year’s government shutdown. Terrible ratings are nothing new since Congress has an average approval rating of under 12 percent, however, in the past, Americans approved more of their district’s representative than the legislative branch as a whole, but that number took a dive as well. In June before Republicans took back the House in 2010, 40 percent of Americans told Gallup their represented didn’t deserve to be re-elected, yet 85 percent of members seeking re-election held their seat. The poll also found among the 1,029 adults from both parties surveyed via phone between July 30 and Aug. 3 disapproved of their representative equally at 46 Democrats and 44 percent Republicans. This also differs from the past two midterms as polls found higher anti-incumbent sentiments among the party that would go on to win the House.

An even bigger threat to Congress and the White House, according to what U.S. officials told CNN, is a new leaker that exposed national security documents in the aftermath of surveillance disclosures by former NSA contractor Edward Snowden, Evan Perez reports, New leaker disclosing U.S. secrets, government concludes. The Intercept, a news site launched by Glenn Greenwald who also published Snowden’s leaks, published Tuesday a news story based on national security documents shows proof of the newest leak. The article focuses on the growth in the U.S. government databases of known or suspected terrorist names during the Obama administration citing documents prepared by the National Counterterrorism Center dated August 2013 which was after Snowden left the U.S. to avoid criminal charges. Government officials are trying to find out the identity of the person, while Greenwald, in a February interview with CNN’s Reliable Sources, said: “I definitely think it’s fair to say that there are people who have been inspired by Edward Snowden’s courage and by the great good and virtue that it has achieved. I have no doubt there will be other sources inside the government who see extreme wrongdoing who are inspired by Edward Snowden.” It is not clear how many documents the new leakers shared or how much damage it caused as the documents shard are labeled “Secret” and “NOFORN” which means it was not shared with foreign government. That’s a lower classification than most of the documents leaked by Snowden. Government officials said he stole 1.7 million classified documents many of which were labeled “Top Secret” a higher classification for most important government secrets.

On Tuesday, Democratic Senator Claire McCaskill of Missouri has proposed a new bill called the Motor Vehicle and Highway Safety Enhancement Act aimed to improve automotive safety following the high profile recalls of General Motors and Toyota, Autoblog reports, Senator Pushes For Up To Life Sentence For Auto Execs Found To Delay Recalls. The plan includes doubling the budget for the National Highway Traffic Safety Administration over the next six years, removing the $35-million limit for fining automakers, and most importantly a provision to punish auto executives who knowingly delay recalls with a life sentence. McCaskill’s office told the Detroit News: “(The bill) gives federal prosecutors greater discretion to bring criminal prosecutions for auto safety violations and increases the possible penalties, including up to life in prison for violations that result in death.” If a delayed recall ends in serous injuries, execs could face a 15 year stint behind bars. By removing the limit on per-vehicle fines, the fine structure can be increased from $5,000 to $25,000 e.g. GM could have been hooked for $55 billion in fines for its ignition switch recall rather than just $35 million. According to The News, McCaskill said: “With millions of Americans behind the wheel every day, and more than 33,000 killed on our roads each year, we’ve got to do more to keep our cars and the roads we drive them on safe. Painful recent examples at Toyota and GM have shown us we also must make it easier to hold accountable those who jeopardize consumers’ safety. For too long, auto safety resources have remained virtually stagnant while cars and the safety challenges they present have become more complex.”

More Safety Troubles for GM

GMC SIERRA

On Friday of last week, General Motors announced three more recalls including one of its top selling vehicles. The recalls are part of a top to bottom safety review bringing the companny’s total to 48 recalls with a staggering 20 million cars and trucks recalled betting GM’s old full year record of 10.75 million in 2004, according to Tom Krisher’s article GM Issues 3 More Recalls, Covering 474,000 Vehicles. Friday’s recall covered 474,000 vehicles worldwide for a variety of problems with the largest one affecting almost 467,000 four-wheel-drive Chevrolet Silverado and GMC Sierra pickups, as well as GMC Yukon and Chevrolet Tahoe and Suburban SUVs. The Sierra is GM’s top-selling vehicle. The company explained the source as a software glitch can cause the transmission transfer case to shift into neutral on their 2014 and 2015 models causing loss of power or can let the trucks roll away if parked. Most were sold in the U.S. and Canada with a small number exported. All the recalled announced had no loss of life or injuries reported. In addition to the above recall, one affects nearly 4,800 Chevrolet SS and Caprice police cars with faulty windshield wiper modules that could strip the gear teeth causing the wipers to fail. In the other case, the dealer will replace the two rear shock absorbers in about 2,000 2014 model year Chevrolet Corvettes with the FE1 and FE3 suspensions due to insufficient welds that could lead to fracture.

GM’s safety troubles and large recalls from other manufacturers has lead the U.S. auto industry to a new full year record for the number of vehicles recalled. In the last 6 months, 32.4 million vehicles have been recalled surpassing the old annual record of 30.8 million in 2004, according to Stericycle, a firm which tracks recalls and helps manage them. The trouble started back in February for GM when it recalled older small cars to fix ignition switches that turn off engines on their own. The problem can cause drivers to lose control as it kills power steering and brakes. Due to the problem then ballooning to 2.6 million vehicles, GM had to admit that it knew of the defect for more than a decade and did not recall the cars til this year. Although lawmakers say the death toll from crashes is closer to 100, GM says the problem caused 54 crashes and 13 deaths. The ignition switch problem touched off a massive safety review in the company and additionally an investigation by Congress, the Justice Department and the National Highway Traffic Safety Administration. GM had to pay NHTSA a $35 million fine for delays in reporting the problem to the agency and announced it has taken charges totaling $2 billion to cover recall costs, according to Krisher. Last Thursday, NHTSA posted documents showing GM would recall about 29,000 Chevy Cruze compacts in the U.S. for airbag problems. Additionally Friday, GM said that 4,000 Cruzes from Canada are included in the recall.

However, on Monday, General Motors announced another massive recall covering 8.4 million vehicles in North America  with 8.2 million due to unintended ignition key rotation, according to the Autoblog staff’s article General Motors Recalling 8.4 Million More Vehicles. The size of the recall roughly equates to a car for each resident of New Hampshire, Rhode Island, Montana, Delaware, South Dakota, Alaska, North Dakota, the District of Columbia, Vermont and Wyoming. Combined. GM is aware of seven crashes, eight injuries and three fatalities related to various issues, the article reports. In a press release, GM stated, “The fatal crashes occurred in older model full size sedans being recalled for inadvertent ignition key rotation. There is no conclusive evidence that the defect condition caused those crashes.

The ongoing safety crisis deepened on Monday as GM issued another recall of 8.23 million mostly older cars linked by the U.S. automakers to three deaths, according to Reuter’s article GM’s ignition-switch crisis deepens; death toll rises to 16. The latest recall brings the total number of acknowledged deaths by GM to at least 16 in cars with switch related problems. The automakers now knows of 61 crashes tied to faulty ignition switches, even though lawmakers believe the number to be much higher and the death toll is expected to rise. In a statement, GM said, “Among these recalled vehicles, GM is aware of seven crashes, eight injuries and three fatalities. The fatal crashes occurred in older model full-size sedans being recalled for inadvertent ignition key rotation. There is no conclusive evidence that the defect condition caused those crashes.” According to Reuters, in June, at least 74 people died in GM cars in accidents with similarities to those that GM earlier linked to 13 deaths involving defective ignition switches. U.S. House and Energy and Commerce Chairman Fred Upton, whose committee twice has interviewed GM Chief Exec Officer Mary Barra, said of the additional fatalities and recalled reported on Monday that it “confirms our fears that GM’s safety failures were much more widespread than initially reported.”

GM said it will not include the latest fatalities in a compensation fund set up to provide $1 million to crash victims tied to defective switches in older compact cars, including  the Chevrolet Cobalt and Saturn Ion. The compensation fund could cost billions of dollars for GM, however is necessary to repair the company’s image and move beyond the liability claims. The funds administrator, attorney Kenneth Feinberg, does not yet know the number of victims seeking damages or the number of fatalities caused by faulty parts as claims are not yet processed. In addition to paying damages, GM now faces legal problems on a number of fronts including a county district attorney in California who announced on Monday a lawsuit accusing GM of being a threat to public safety by concealing 35 safety defects that promoted the recall of million of vehicles. GM shares on Monday closed at $36.30 down 0.9 percent.