The GOP Alternative
Justin Fox gives his view of the conservative alternative to the bailout deal. He says it “seems to be a joke.”
It calls for a two-year suspension of the capital gains tax to “encourag[e] corporations to sell unwanted assets.” But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn’t be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?
Meanwhile, John McCain’s view is that he doesn’t have time to debate tonight because we don’t have a deal on the bailout while at the same time he’s the one preventing a deal from being reached.
23 Responses to “The GOP Alternative”
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September 26th, 2008 at 9:20 am
Wait, it’s not quite that crazy. The idea is that cutting capital gains taxes will create a bigger incentive for buyers to find and buy underpriced assets that will appreciate. In any transaction there is a seller and a buyer, and the capital gains tax cuts here affects what the buyer will pay, not what the seller will demand.
Not clear the magnitudes work out, but you need to look at buyers and sellers.
September 26th, 2008 at 9:31 am
You think these things will appreciate meaningfully in two years? Those that increase in value will not be worth noticeably more until the housing market starts going up again. A capital gains incentive wouldn’t work unless it was 8 or more years long. That’s nuts.
If you want a tax incentive for purchasing them, make it only on mortgage backed securities purchased between now and and 12/31/08.
September 26th, 2008 at 9:33 am
Meanwhile, John McCain’s view is that he doesn’t have time to debate tonight because we don’t have a deal on the bailout while at the same time he’s the one preventing a deal from being reached.
Isn’t that… conveeeenient.
September 26th, 2008 at 9:50 am
I don’t want McCain to show up for the debate, but either way he looks foolish.
September 26th, 2008 at 10:10 am
It’s no crazier than, you know, using profits from the bailout fund to pay for affordable housing.
Once Democrats started asking for their favorite goodies, it was inevitable Republicans would.
September 26th, 2008 at 10:10 am
The Republican kneejerk reaction to any financial question is to lower the capital gains tax, so this is no surprise. Hearing it last night made me start yelling at the TV: “But there are no short-term gains out there to be realized right now!”
A suspension of the capital gains tax might cause some investors to buy distressed assets (at less than 40 cents on the dollar, they’re a deal) but it might also cause them to sell out longer-term investments, put the money under the mattress, and try to ride it out. That’s called a market crash and we’re in the middle of one without a capital gains tax moratorium.
September 26th, 2008 at 10:15 am
It perhaps perfects the metaphor at work here that the guy the Joker grabs at the end of the clip is Patrick Leahy. For real.
September 26th, 2008 at 10:31 am
I looked at the description of the RSC plan, and I think there is a mistake:
Privatizing Fannie and Freddie, artificial support for the dollar and deregulation – they are obviously just stating what caused the problem, not how to solve it. I’m sure their real plan comes later in the bill. Seriously people, nobody could be that stupid and get elected to office. Right? Please?
September 26th, 2008 at 10:38 am
Wrong Right.
The best that can be said for the RSC plan is that, while it won’t solve any problems, it might not do that much harm.
Getting people into homes could conceivably help. It supports home prices in two ways – fewer homes on the market and fewer vacant homes going to pot. While we don’t want to go nuts with supporting home prices, I don’t think there is any danger that they will stop falling soon even with these meagre measures.
September 26th, 2008 at 12:21 pm
Getting people into homes could conceivably help. It supports home prices in two ways – fewer homes on the market and fewer vacant homes going to pot. While we don’t want to go nuts with supporting home prices, I don’t think there is any danger that they will stop falling soon even with these meagre measures.
Maybe. But that’s not much more directly related to the bailout than saying cutting capital gains taxes will help by stimulating investment in all sectors of the economy, thereby mitigating any pain caused by the bailout and finanicial mess.
If Democrats had focused on just getting the bailout right (insisting on oversight, equity stakes, etc.) without jumping on their usual hobbyhorses, it would have been much harder for the Republicans to jump on theirs. And Matt was a prime example of a Democrat who thought it was a great time to push their hobbyhorses into the conversation.
September 26th, 2008 at 12:31 pm
Eliminating the capital gains tax would help fulfill the far right’s real goal, eliminating or reducing those commie programs like Medicare and Social Security because of the enormous deficits…
September 26th, 2008 at 2:22 pm
Yes, it is.
The ultimate source of the problem is that the properties which act as collateral for the loans which are the basis of the mortgage backed securities are losing value. If they lose less value, then less bailing out needs to be done. It is a more efficient use of funds, though it is slower and more cumbersome than direct purchases of bad securities.
Cutting capital gains rates only increases investment in the long term. In the short term, it cuts investment. That would exacerbate the current crisis. It would specifically cause people to hold onto those lossy securities until a time when capital gains taxes went up, so they could use them to offset proft taking. It’s putting out a fire with gasoline.
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