Gohmert, from daylife.com
Louie Gohmert is a Republican member of Congress from the First District of Texas, a member of the Republican Study Committee, and a generally reliable fiscal conservative. But that doesn’t mean he doesn’t have bad ideas. Red State was gushing today over Gohmert’s plan to spend the remaining $350 billion from the $700 billion bailout of Wall Street on a two-month, temporary “tax holiday.” More, from Human Events:
Gohmert?s tax holiday plan is elegant in its simplicity: every American taxpayer would pay no federal income or FICA taxes for the first two months of 2009. For the typical American family — earning about $50,000 a year — that would mean they would keep about $2000 that would otherwise be paid to the government.
Josh Barro at The Tax Foundation explains the difference between buying assets through the bailout and forgoing tax revenue. Hint: they ain’t the same.
A key problem with this proposal and its counterparts on the left (see, for example, The Progressive’s $700 billion wish list for new government spending) is that they conflate buying $x worth of assets with spending $x on programs, or foregoing $x in tax revenues. Because TARP (the bailout program) is not really $700 billion of spending, an alternative plan of the same size that funds more government programs or gives new tax cuts would blow a much bigger hole in the federal budget than TARP does.
So far, the Treasury has used about $350 billion of the $700 billion in funds available through TARP, principally to purchase preferred stock in large banks. The preferred stock is an asset with real value?the banks pay an annual rate of interest to the government, and the government can sell the preferred stock to other investors. So, when the government buys $350 billion worth of preferred stock in banks, it’s not spending the money; it’s investing it.
Gohmert’s plan may be well-intentioned, but bad policy. Temporary tax relief, whether in the case of John McCain and Hillary Clinton’s campaign-trail call for a gas tax holiday, Senator Jim DeMint’s two-year suspension of the capital gains tax, or the Gohmert plan, will do little to stimulate the economy. Permanent tax rate reductions are far preferable. And if tax relief truly is the goal, Congress can start by voting to extend the Bush tax cuts if Democrats allow them to come up for a vote before expiration in December 2010. They could slash and simplify our corporate tax rate, the second highest in the developed world, but which collects the fourth lowest corporate revenues due to rampant exemptions and loopholes. They could oppose massive new energy taxes that are inevitable with a cap-and-trade regime. Anything — but temporary tax cuts alone won’t do.
