Tax Holiday or Bailout Baloney?

When Congress reconvenes this week to consider a bailout for the auto industry, Republicans should offer Rep. Louie Gohmert’s tax holiday bill as a substitute. (You can sign the Human Events/RedState petition supporting Gohmert’s tax holiday bill by clicking here.)

According to a new CNN poll, 61% of Americans oppose the auto bailout. We see what Democrats don’t: a mismanaged industry that is in trouble because it has made giveaway labor deals for three decades and cannot recover without escaping them. We see — as I wrote on November 24 — that the bailout is for the United Autoworkers’ Union rather than the companies.

Big Three auto chiefs and UAW President Ron Gettelfinger were in Washington again last week to stampede Congress into lending them $34 billion, $9 billion more than they asked for the last time they were here. Their point was simple: bail us out or we’ll go into bankruptcy and millions of jobs will be lost. But is this true? Apparently not.

And, just as apparently, bankruptcy is exactly what Detroit needs in order to survive more than another year. Two proofs.

First, the amount they requested isn’t sufficient to bail them out. As prominent economist Mark Zandi, chief economist and co-founder of Moody’s, testified, if Detroit gets the $34 billion now, they’ll spend it and come back next year for more. Zandi said that they’d need $75 to $125 billion to avoid bankruptcy.

Yesterday on "Meet the Press", President-elect Obama said that he didn’t support a bailout that only results in the automakers coming back for another one next year.

The GM, Ford and Chrysler CEOs — and, of course, Gettelfinger — insist that bankruptcy will destroy consumer confidence and result in liquidation of their companies. But the nonpartisan Congressional Research Service in an explosive report just released says that claim is, to put it kindly, balderdash.

CRS — in a report entitled “US Motor Vehicle Industry: Federal Financial Assistance and Restructuring” — says:

The automakers have said that consumers will be unwilling to buy cars from a company in bankruptcy…One might question whether the recent urgent requests for financial assistance do not diminish consumer confidence at least as much as much as would a bankruptcy filing designed to reorganize the company and lead to financial viability. In the past, Chapter 11 bankruptcy protection has been viewed by some as providing the reorganizing company with a competitive advantage in the marketplace by allowing it to reject burdensome contracts; modify collective bargaining agreements; and reduce total debt, reduce required payments, or both. In that case, filing under Chapter 11 could boost consumer confidence in the troubled automakers. A prepackaged Chapter 11 could also reduce the effect of a bankruptcy filing on consumer confidence since the company would spend little time in bankruptcy. (Emphasis added)

Importantly, CRS points out that Congress can change the bankruptcy law to ensure that the automakers survive. If there’s something that needs to be done to save the automakers (not the UAW) Congress can amend Chapter 11 to accommodate it.

Democrats are already complaining about the CRS report because it severely undermines the rationale for the bailout. Combine it with Zandi’s testimony and the conclusion is inescapable: the automakers’ bailout will not save the carmakers, and will only serve to support — temporarily — the UAW’s gold-plated labor agreements. It will only delay the carmakers’ inevitable collapse.

There’s a better way, and conservatives should rally to it. Rep. Louie Gohmert’s tax holiday plan is a sound economic approach to beginning America’s economic recovery.

Gohmert’s plan is simple: when Congress passed the original financial community bailout, it split the $700 billion package in half. Gohmert would apply the unused half by giving American individual taxpayers a two-month holiday from federal income and FICA taxes, amounting to about $2000 per taxpayer that people could spend as they choose instead of having the government use it to bail out whoever.

Some conservatives have objected to Gohmert’s plan because it’s not as good as permanent tax relief for individuals, or relief from capital gains taxes.

But they are committing the cardinal mistake of making the perfect the enemy of the good. Gohmert’s plan isn’t perfect, but it’s a huge improvement over a UAW bailout and the bank bailout into which the government has already poured hundreds of billions of dollars to no apparent avail.

This is reality: Pelosi, Reid and Obama will not allow any permanent tax relief, capital gains relief or any of the other tax cuts conservatives know will work. But for conservatives and Republican Congressional leaders to reject Gohmert’s plan is to reject the only credible alternative to the continued bailouts favored by the unions, the Democrats and Treasury Secretary Hank Paulson.

This is not some academic exercise: it’s full-contact politics, and conservatives need to weigh in as forcefully as they can. And the best way to do that this week is to rally around Gohmert’s plan.

When the House votes later this week on the automakers’ bailout, House Conservatives should offer the Gohmert bill as a substitute. It will not necessarily fail: remember, the House Republican Study Committee led the charge and caused the original bailout bill to fail initially. Their result should be as good with the Gohmert bill because they would be on the side of the American voter and common sense.

Cartoon by Brett Noel.