WASHINGTON – House Republicans are rallying behind an alternative to the Bush administration's taxpayer rescue of Wall Street.
Economists immediately criticized the plan once details surfaced Friday.
The lawmakers, led by Rep. Paul Ryan, R-Wis., and Rep. Joe Barton, R-Texas, are calling for a temporary elimination of the capital gains tax, a two-year tax holiday that allows U.S. companies to repatriate earnings from abroad, and an insurance program that would be a private-sector alternative to the $700 billion taxpayer rescue proposed by Treasury Secretary Henry Paulson.
The problem with the House GOP plan – which as of late Friday boiled down to a page or two of talking points – is that it doesn't get at what is ailing the U.S. economy right now, economists said. That's a lack of confidence that's causing credit markets to seize up and raising the cost of doing business for corporate America, thus threatening jobs.
Paulson has proposed having the government buy bad assets on pennies on the dollar, getting them off balance sheets and restoring health to banks and other financial companies sitting on mortgage bonds that no one wants to buy.
At a Friday afternoon news conference, Barton said he and fellow Republicans want a market-based solution and proposed an insurance-like program instead of the government buying the bad assets. But he couldn't specify just what was being insured, the actual bond that no one wants to buy, or the underlying collateral, which are mortgages, some of them distressed. Details, he said, would come later. Ryan's office didn't share details of his insurance plan when asked.
The root of the credit-market problem is that mortgage bonds have been rendered illiquid, meaning no one wants them, insured or not.
"We feel that the Paulson compromise is the best plan to restore confidence, credit availability and market stability in a timely manner," said Travis Larson, spokesman for the Securities Industry and Financial Markets Association. "None of the other alternatives put forward thus far achieve those fundamental objectives."
On the tax proposals, temporarily waiving the 15 percent capital gains tax "would cost hundreds of billions of dollars," said Len Burman, director of the Tax Policy Center at the centrist Urban Institute, a think tank.
Barton and colleagues have not yet offered exactly how they would offset the lost revenues. They said they seek to avoid a taxpayer bailout, but cutting taxes means foreswearing tax revenue, so taxpayer money is in the mix either way.
Traditionally, the buyers of the now-toxic mortgage bonds are pension funds and other institutional investors that handle the retirement funds of ordinary Americans and aren't subject to the capital gains tax, said Burman, adding that 70 percent of the benefits of the tax holiday would flow to Americans earning over $1 million.
"This tax holiday is a holiday from reality," he said, adding that it could also have the unintended consequence of encouraging investors to cash in and sell, potentially destabilizing as investors took advantage of a tax break to flee riskier assets.
Call Kevin G. Hall, McClatchy Washington Bureau, (202) 383-6038.
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