The financial crisis of 2008 was estimated to be the most dangerous since the Great Depression of the 1930’s (The financial crisis, 2009). The catalyst was the 2007 bubble burst of the housing market. This issue spread quickly to the US financial sector and then across other domestic and global businesses. The American auto industry was devastated by this crisis. Detroit’s big 3 companies Ford, Chrysler and GM’s debt problems were exposed as a result of this crisis. These 3 automotive giants were experiencing financial woes they had never previously encountered. This forced them to seek solutions that would allow them to remain a viable entity in the coming years. For GM the bills came in while cash flows decreased. This created an insolvent situation by which they could not recover. This ultimately forced the U.S. and Canadian governments to step in to assist with GM’s bailout/bankruptcy proceedings ("A giant falls," 2009).
The ripple effect of the automotive melt down moved to the surrounding communities. Detroit and the surrounding communities were hit very hard. These communities are heavily reliant on automotive and the complementary raw material production supporting the industry. When the big 3 were in an insolvent situation Detroit’s communities began to crumble. This ultimately lead Detroit to declare for bankruptcy protection July 18, 2013 ("Key dates in," 2014). Although, the automotive companies have slowly recovered Detroit has yet to emerge as their most recent Chapter 11 plans are still being questioned. Many of the cost cutting measures will include people losing their pensions. This coupled with loss of jobs and decimation of Detroit’s housing markets continues to perpetuate their financial problems (Niraj, 2014).
As domestic problems continued to manifest they spilled over into global communities. Global recession began to occur by the end of 2008. At the end of 2008 the Dow Jones value had decreased by 33.8%, China, Germany and Japan were locked in recession. Part of this recession stemmed from diminished US demand for exported products (The financial crisis, 2009). In order to breathe life into the American and world economies the US Government passed the American Recovery and Reinvestment Act 2009. This economic stimulus package was created to restore economic growth and trust in the financial industry (Berk & DeMarzo, 2011).
This assessment will evaluate this stimulus package to determine the tax effects associated with bonus depreciation, Section 179’s Expensing of Capital Equipment and extended carryover of losses (from 2 years to 5 years). These allowances were designed to provide much needed cash to businesses, create jobs and prevent job losses. This evaluation will conclude with a discussion of how interest rates for businesses can be affected with the carrybacks of losses.
The tax changes outlined in the American Recovery and Reinvestment Act of 2009 adopted changes in...