Why Is Detroit Mulling a Tax Break for General Motors?

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As the U.S. and Canadian governments sell off remaining shares of General Motors (NYSE:GM) stock, the automaker may benefit from a tax break offered by the bankrupt city of Detroit. According to a report by The Detroit News, the Detroit City Council has already approved a measure that would grant a $600,000 tax break to General Motors. After receiving final approval, it would offset costs GM planned to invest in its last assembly plant within Detroit city limits.

The measure is seen as a way of encouraging General Motors to build two logistics facilities in the Detroit-Hamtramck Assembly Plant, The Detroit News reports. The price tag would be approximately $121 million and create 210 jobs at the plant, as well as another 165 construction jobs to make the additions to the facilities. The site is the last GM plant actually within city limits, giving General Motors leverage in its position with bankrupt Detroit.

The measure has sparked protests in Detroit as the city’s emergency manager, Kevyn Orr, prepares to review the city council measure. According to Michigan Radio, protesters appeared Monday at GM headquarters in Detroit to protest the tax abatement. Organizers suggested that the automaker has already received enough assistance — including a $50 billion federal bailout in 2008 — and should pay its full tax obligation to the beleaguered city.

General Motors, for its part, reminded the public of the $500 million it invested in the Detroit-Hamtramck plant in the past four years, Michigan Radio reports. The amount in question was much larger when protesters took to Detroit’s streets on Monday. Estimates by the automaker put the tax payment well over $1 million, and the figure was lowered to $600,000 after the city made its own assessment of the tax payment GM would owe the city, according to The Detroit News.

As in the case of the notorious bailout, civic leaders must choose between the impact of several hundred jobs for Detroit and balance that against the $600,000 or more in taxes it would receive from General Motors over the course of the next 12 years. The Detroit City Council decided it was ready to deliver the tax break in a vote of 5 to 1. Orr, Detroit’s emergency manager, must now decide to approve it or send it back to the council.

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