The Washington Metro Crash and Tax

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11 Responses

  1. “Thus sale-leasebacks, which are purely tax-motivated transactions,…”

    I blame the Bush tax cuts…but as you noted earlier, this isn’t a purely tax-motivated deal; WMATA would have received cash…

  2. Sarah Lawsky says:

    What I meant by saying it was “entirely tax-motivated” was that WMATA got the cash only because they were selling tax assets (deductions, credits). Put another way, without the tax code, this sale/leaseback would probably never have happened–generally these sorts of transactions do not have a separate business purpose.

  3. Lawrence Cunningham says:

    Important post and implications. Thanks for this.

  4. Bobo says:

    All the software for Metro was outsourced to Indian IT firms who took it over in August 2008. If the hardware was dangerous, then why no crash previously? How come the crash happened right after Indian, Inc. took the software over. Answer: India, Inc. is incompetent and screwed the software up, just like they did at ComAir and caused the 12/25/05 nationwide airport system shutdown when their software couldn’t handle a peak load. Do the research – the facts are in plain view.

    India, Inc. is now also designing and working on our air traffic control software. Do you feel safe flying? Expect planes to start dropping out of the sky.

  5. “Put another way, without the tax code, this sale/leaseback would probably never have happened–generally these sorts of transactions do not have a separate business purpose.”

    possibly but I still don’t see the relevance. The tax deductions go into the pricing – without them, WMATA would either have to pay a higer leasing fee or end up keeping the cars on their own books. If WMATA couldn’t afford to pay an early lease termination fee (assuming they wanted to) why does anyone think they could have replaced all these-apparently-still-adequately-operating cars.

  6. Sarah Lawsky says:

    Maryland Conservatarian–

    I think I wasn’t clear about exactly what the transactions are–I will put up a post later today explaining it better. WMATA wouldn’t have paid any leasing fee at all, because they would not have been leasing the cars.

    I also take you to be making a second point, which is very interesting and also worth a separate post: that this tax-motivated transaction provided Metro with funding it desperately needed, so that the cars would not have been replaced even without the “tax advantage lease.” That may well be. The only reason I am focused on what the leases were and how they prevented WMATA from getting rid of the cars is that WMATA itself said that the reason they could not get rid of the cars was the leases. But the funding issue is really interesting, and in a future post I will talk about how Metro is funded–e.g., how the FTA was pushing these sale-leasebacks (which the IRS later disallowed).