Washington is dizzy with a bad case of bailout fever. Hundreds of billions of dollars have been dispensed by Treasury Secretary Hank Paulson without apparent success in reviving the financial markets. Now one Texas conservative is challenging Congress and the White House with a common-sense plan that is much more likely to help our economy recover more than bank bailouts or any handouts to carmakers.
Rep. Louie Gohmert (R-Texas), a member of the conservative House Republican Study Committee, proposes to use the $350 billion left of the $700 billion bank bailout to fund a two-month tax holiday that would put money in the pockets of American taxpayers.
Gohmert is a work horse, not a show horse. He went to Texas A&M on an Army scholarship and then to Baylor Law School. He served in the Army JAG and practiced law, eventually becoming a judge and then chief justice of the local appeals court. Elected to Congress in 2004, he’s not been in Washington long enough to be entirely jaded.
“The judge” is smart, tough and relentlessly conservative.
Most Americans were opposed to the bank bailout last fall, and neither they nor the markets themselves have confidence that any of the bailouts or “stimulus packages will work. They will have confidence in Gohmert’s plan because it is an economic stimulus that has been proven by history: tax cuts mean more spending, saving and investment. They pave the way to economic recovery. Government bailouts do not.
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.
Gohmert’s plan doesn’t pay for Wall Street bonuses or let banks use bailout money to buy other banks or pay dividends. It doesn’t rely on bureaucrats to pay money out to the right people at the right time or try to stimulate the economy with token payments to people who don’t pay taxes.
Most Americans pay about 25 percent of their income in federal income tax and another 7.25 percent in FICA (social security and Medicare taxes). Computing how much money Gohmert’s tax holiday would leave in your family’s checkbook is very simple.
Take your monthly income (the gross amount shown on your pay stubs before tax and any other withholding) and multiply it by .66. That amount is roughly what Gohmert’s two-month tax holiday will leave in your pocket.
According to American Solutions — Newt Gingrich’s group — Americans pay over $101 billion in income taxes and another $65.6 billion in FICA taxes each month. Under Gohmert’s plan, all of that money would — for two months, totaling about $332 billion — be left in voters’ pockets to spend however they choose to meet their families’ needs.
Gohmert doesn’t plan to include corporations in the tax holiday. But, as he told me, if employees don’t have to pay FICA for two months, the employers’ portion of that would also be eliminated, giving corporations some relief of about $65 billion over the two months.
Gohmert is preparing legislation to declare the tax holiday for January and February of 2009 and plans to introduce it as soon as Congress is back in session next week.
In an interview yesterday, Gohmert told me that Treasury Secretary Paulson hasn’t succeeded with the approximately $350 billion already paid out because his predictions of coming disaster had more credibility than his bailout plans.
Gohmert said, “The bailouts haven’t worked so far because, for one thing, Paulson created a self-fulfilling prophecy of doom and gloom in the stock market. When the Secretary of the Treasury announces, for two weeks, that we could have a depression worse than the 1930’s then, even though he spends the next six weeks saying ‘no, it’s not going to be that bad,’ he has already created schizophrenia within the stock market.”
Gohmert’s plan is limited to individual taxpayers and doesn’t include a capital gains tax holiday. He told me that he’d like to do that too but — given the current Congress — it’s probably a bridge too far. He recognizes, too, that if we really want to bring jobs back from overseas, we’d lower corporate tax rates.
Freeing individuals from two months of federal taxation would be a substantial benefit to families and the economy. “Those who can’t catch up on their mortgage get one-third of their money back each month and then they’ll be able to catch up on their mortgages. They’ll be able to refinance their mortgages, they’ll be able to buy stock that they can’t currently buy,” Gohmert said.
He added, “Somebody earning $72,000 would get a couple of thousand dollars back a month if we allow them to get back both income tax and FICA.”
“It would be extraordinary. New cars bought, stock purchased, new homes, new buildings being built.” Gohmert believes that his plan — which would leave the spending decisions to individual taxpayers — would be much more effective in reviving the economy than the centralized power given the Treasury Secretary because people “always do better with their own money than the government does.” He said, “It would be so much more valuable to the economy than having one person who’s been wrong on just about everything they’ve predicted or said having that much power.”
Gohmert quoted the late John Kenneth Galbraith who said there are only two kinds of economists: those who don’t know and those who don’t know they don’t know. He placed Paulson in the latter category. The Treasury Secretary was absolutely certain that the mortgage-backed securities needed to be bought by the government and predicted disaster if he wasn’t given authority to buy them up. But — given his more recent statement that he knew at the moment the legislation was being passed by Congress that that strategy wouldn’t work — Gohmert’s judgment seems entirely justified.
This week, automakers will come back to Congress with their plan to justify a $25 billion bailout for their companies. One thing is certain: the plan won’t include a solution to the problem of their industry-killing labor agreements. Their plan will certainly bail out the United Auto Workers union and leave the car companies in the same mess they are in now. Gohmert’s plan wouldn’t throw good money after bad: it would give our economy a badly-needed boost.
When Congress returns next week to consider the automakers’ bailout, it’s unlikely that Speaker Pelosi will allow Gohmert’s bill to come to the floor. But between now and then conservatives can rally to it, and perhaps — just perhaps — push the White House to support it and gain the chance of a House vote.
Even President-elect Obama should support Gohmert’s plan. Wasn’t he proposing a tax cut for the middle class?