How About a Market-Based "Bailout" for Auto-Makers?

WASHINGTON - Government bailout or bankruptcy for automakers? How about the third option presented in an op-ed in the WSJ's OpinionJournal today by Congressman-elect Jared Polis (D-CO)?

The incoming congressman-elect from Colorado has a savvy business background as the founder of proflowers.com and bluemountain.com and has this idea which certainly has merit:

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive...

My Washington Times op-ed on "Obamanomics"

Politics is always a fascinating spectator sport and watching the transition of President-elect Obama has been no exception, particularly when it comes to the influence of his newly announced economic team in the current administration and proposed plans for economic stimulus.

You can read my report card on Obamanomics so far as well as some important tax cutting steps including capital gains that the President-elect should consider in my op-ed in today's Washington Times:

He gets an "A+" for expectations. Mr. Obama has done a thorough job of painting the economic realities of this crisis and has made it clear that it requires much more than a quick fix.

And "A" for the president-elect's economic team. The triad of Mr. Geithner as Treasury Secretary, Larry Summers as White House National Economic Council "czar" and Christina Romer as chair of the President's Council of Economic Advisers can't be beat. Add Paul Volcker as Chairman of the president-elect's new Economic Recovery Advisory Board with Austan Goolsbee as the Board's chief economist, and key players like Peter Orszag as budget director, among others, and you have a solid economic team. This is a team of free traders, centrists, supporters of earlier financial deregulation and proponents of capital formation. (Full disclosure, Messrs. Summers and Volcker have both served on the board of the American Council for Capital Formation (ACCF)).

A "C" is for the Obama fiscal stimulus package to date. The good news is that the economic recovery plan is still evolving. The rumored cost of the package, $700 billion or 4-to-5 percent of GDP, is a big number but commensurate with the size of the problem. It includes spending on infrastructure, education, and "green jobs," but it ignores the powerful impact that tax policy can have on economic growth. Therefore it does not warrant an "A."

President Kennedy proposed reductions in marginal individual tax rates, corporate income tax and the capital gains tax because of the impact on "investment, the mobility and flow of risk capital and the strength and potential for growth of the economy." Mr. Obama should do likewise to meet his short-term goal of jump-starting the economy and providing for long-term economic growth, job creation, international competitiveness, sensible energy policy, and retirement security...

Fox Business News: My Report Card on President-Elect Obama's Economic Plan

You can see my Fox Business interview yesterday where I offer my report card on the President-elect's new team and his approach to the economic crisis as well as my recommendations for a much needed tax component to economic stimulus here:

Proposed Transaction Tax on Securities Will Make Investors Insecure

A recent report in BNA's Daily Tax Report notes that among the The Progressive Policy Institute's recommendations to President-Elect Obama to help finance his middle class tax cuts are a proposed securities-transaction tax applied to purchases and sales of securities--yet another tax layer in addition to the capital gains tax. They do propose implementation in 2010 after stimulus packages have stimulated, but is a new tax on investments really the way to lead investors that have lost their nest eggs back into the water?

Here's what PPI proposes:

You are right that the top rates of the Bush tax cut should be allowed to expire. Yet with the government bailouts of the financial and housing sectors (along with a possible second stimulus package), that extra revenue alone will not be enough to pay for both a middle-class tax cut and reductions in a fiscal year 2009 deficit—a deficit that some believe may reach an astronomical $1 trillion. That is why we are proposing an additional offset to pay for a middle-class tax cut: a securities-transaction tax...

A tax of this size, with comparable taxes on various other financial instruments, like options and futures, would help reduce the excessive speculation that has contributed to our current financial crisis. A transaction tax of 0.25 percent on the trading of securities, derivatives, and credit swaps could raise anywhere from $100 billion to $150 billion annually, enough to cover the cost of your middle-class tax plan and then some. Alternately, you could use some of the revenues from the transaction tax to cut the highly regressive payroll tax (thus restoring some balance between how we tax income from work and capital) and apply the rest to extend the life of the Social Security Trust Fund.

National Journal asks Is Obama's Tax Plan A Good Recession-Fighting Stimulus?

John Maggs with National Journal's Economic Experts blog posed this question to myself and the other regular contributors -- after President-elect Obama suggested that he would continue with his campaign tax plan, which would involve cutting taxes for most taxpayers and raising them for those earning more than $250,000 a year (a threshold he recently suggested might be lowered to $150,000.) His proposal also involved cutting capital gains taxes for lower-income earners but raising them for others. Assuming that the tax cuts would be speeded up via rebate, how does the Obama plan rate as a stimulus measure? Would raising taxes at the high end during a recession be a bad idea?

Here's my take:

President-elect-Obama's twin tax policy goals of middle class relief and economic growth are admirable but here are a small suggestion and a big one to stir the pot. What does the middle class want? One thing they don't want is to see their hard-earned savings for a rainy day, a first home, their kids' college educations and all their retirement savings taxed and taxed several times more, which our current tax code does. "Gimme back my nest egg" is a common plea of many in the middle class. How about in the short term cutting the capital gains tax to encourage people during the stock market meltdown to buy into the market rather than to sell, thereby boosting stock values and nest eggs and restoring investor confidence?

Once we have in place a necessary fiscal stimulus package and get our economy growing again, how about tackling one of our fundamental economic imbalance -- too much consumption and not enough national saving -- by switching from an income to a consumption tax base? Tax the spendthrift, whether he be Joe the Plumber, James the Wall Street financier, or Gigi in Hollywood, who spend on gas-guzzling SUVs, bragging rights for having the largest yachts ever or owning a castle on the French Rivera and instead reward -- don't tax -- those who save in a college savings account, provide the capital for a new biotech cancer saving drug and underwrite an AIDS prevention documentary. "Yes, we can" address our short-term economic woes and set the stage for long term US economic growth, job creation and competitiveness.