The Bailout Package gets a lot WORSE!



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As much as I don’t like the idea of passing the $700B bailout package, I thought it was a necessary evil the had to get done.  I think Republicans were to blame for it’s failure and the stock market correction on Monday.

Well, with the participation of the Democrats, they have now taken a gut-wrenching bill and made it nearly unacceptable.  In doing so, they may still not get it past the House.  Representatives McConnell and Reid – leaders for both parties came up with a set of additional items to help flow passage -but they aren’t without some potential roadblocks.  The details are still sketchy, but based on what CNN is reporting:

1) Business Tax Breaks

2) Elimination of AMT tax

3) Increase in FDIC insurance by 150K per account

4) Clean Energy credits

5) Oddly – a mental health provision to cover at the same rate health insurance is covered.

The Mental health coverage, in this bill, is bizarre but might be aimed at Democrats to support the bill.  Apparently, the clean energy tax credits were going to get passed in the future – so that isn’t a big deal.  The FDIC insurance from 100K to 250K is ok.  Understand, this really affects mostly the wealthy and I doubt most of them keep 250K in bank accounts rather than investments.

The two I have a huge problem supporting – business tax breaks and elimination/reduction of the Alternative Minimum Tax (AMT).  The first problem is neither one of them is paid for.  That is, it will be an added burden to this bill.  What was a $700B package is now (per the estimates I read) a $800B+ package.  The AMT tax is something that must be addressed and fixed.  It’s been on the agenda of Congress for many years.

For those not familiar, it was a tax invented in the 60’s to be applied to high-income earners to ensure they don’t over use tax shelters.  Unfortunately, Congress never adjusted for inflation and, over the years, it has hit the middle-income earners.  The problem with changing the tax structure is that the Government has relied on those tax receipts from the AMT to fund our budget.  In the past, Congress hasn’t been able to change the tax because it would create a huge addition to the deficit as a result of the significant amount of income would be lost.  In this plan, it’s almost like they are saying, ‘what the hell, we are screwing the debt/deficit anyway – might as well take care of it now.”  Let’s be clear – This will not be something that affects most ‘middle-class’ Americans.  Mostly, it will affect the top 5-10% of wage earners (in most circumstances).  So this isn’t relief to the family of four in Ohio making $60K per year and struggling to get by.

Second, the business tax breaks are something that the GOP would love to get passed. It helps their constituency.  Their blackmail on the vote is going to, again, help the upper-middle class and wealthy – not that Ohio family.  This too will add to our debt/deficit because no spending offsets are part of the bill.

I’ve been railing for this bill to pass for a week now.  However, this is not one that I am sure I can support anymore.  Not even because of my belief that it isn’t fair and opportunistic by the GOP – I do think that. But, I can’t support it because it adds additional debt without spending cuts for things that are not priorities right now to free up credit and get the economy moving.  For anyone who claims that these tax breaks will help the economy – realize this is the same philosophy of the Republicans over the last three Republican administrations – supply side economics (trickle down).  It won’t help, just make the rich – richer.

Unfortunately, while this may get more Republicans on board, it will probably cost the Democrats votes.  Those who believe, as I do, that whatever we do should be done only to support fixing the crisis and not making our long term debt worse than it needs to be.  In addition, those Democrats who don’t vote for the bill may have a tougher election fight – as the Republicans can claim those Democrats don’t want to help the middle-class.

Finally, since the bailout failed the American public is very quickly changing their opinion on the bailout package (as I predicted in previous posts).  According to news sources  – the calls are now running 50/50 on the bailout package.  Even the House seems to be more responsive to the initial package.

It’s unfortunate that this package is turning into the type of bill that everything else in Congress ends up being – weighed down with a lot of ‘junk’ that gets away from the core issue and core problem.  This isn’t pork barrel the traditional sense – but make no mistake – it is a type of pork barrel politics.

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3 Responses

  1. tax breaks to business means more job creation. it is also true that with most tax breaks, revenue is up (tax revenue). business do not absorb new tax liability, they storp hiring or lay off to pay for it. they are working for stock holders A(economics 101) and must keep their interests on the top of the list.

    kw

  2. I understand Economics 101 (as well as 201 and 301 as I was earning my degree) – I also understand supply side economics which is exactly what is being proposed.

  3. i am torn with this legislation…my politics say…let them fall…but reality is that we are past that. socialism is around the corner and it scares me…

    good post…i may use some as a reference to one i have in creation.

    kw

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