Virginians need to be concerned about what the federal government will do to screw up the economy – like Hoover and FDR did. Bad ideas come from both sides of the aisles and in and out of state. This is a critique of some wrong-headed ones coming out of our Commonwealth. I’m sure there are many more here and across the country.
The federal government is supposed to regulate commerce – set standards – for commerce across state lines. It isn’t the federal government’s job to provide “a helping hand to businesses in need.” States can do as they please. But, it isn’t in the Constitution for the U.S. Congress “to create solutions that will both help industry stay afloat and protect taxpayer investment.”
See James Madison’s notes on the Constitutional Convention and the Federalist papers for original intent. See 20th Century Federal Court (including SCOTUS) decisions for contempt of intent and writing legislation from the bench.
Furthermore, it’s just bad business. Legislators will make presumptions like this one for the Automobile industry; “the most important piece of any recovery package to be considered by Congress is that the company in question be required to provide a viable restructuring plan. This plan must clearly demonstrate how a business would return to profitability in the long term.”
As if members of Congress will recognize which plans are viable. How can the Congress, which is incapable of running its own budgets in the black, know which plan demonstrates long term profitability? Who are these automotive industry experts serving as Congressional representatives and senators? What justifies any presumption of competence about what is best for business among politicians of every stripe?
Congress should stay out of the business of picking winners and losers in business – and dumping money on them. Even if Congress requires ‘a plan’ before they start throwing money.
Yet, elected politicians think “Another option that should be considered, either prior to or in conjunction with federal loans, is a program of private financing with federal guarantees. There is no doubt that shaky credit markets have adversely impacted the availability of credit, particularly for firms that are struggling for survival. However, Congress can create a program whereby the federal government provides insurance on private investment for businesses in need. This insurance would be funded by the participants with a modest FDIC-like fee and would cover up to 50 percent of the losses of new investment in the case of a default. Such a program would help to unlock large amounts of private financing, while simultaneously protecting taxpayers.”
Huh? How does paying 50 per cent of losses help taxpayers? That is the Fannie Mae and Freddie Mac model of putting full faith and guarantee of the U.S. treasury behind bad loans. This is precisely what started the financial bubble. It’s bursting created a financial crisis. So, let’s do it all over again for another industry. Sheer genius.
Finally, another way to throw money is through tax policy. Like, “Legislation allowing a $10,000 tax deduction on the purchase of a new car would certainly benefit the auto industry. So too would a bill that allows the deduction of the state and local sales taxes on new car purchases from federal income tax. Initiatives like these can easily be extended beyond the auto industry to help any number of ailing businesses, with little or no taxpayer exposure.”
This is way to get bigger campaign contributions from car dealerships and automotive suppliers. And it is a crock for tax policy. Only people who pay $10k in taxes could benefit. Ah, these are the same people who can give significant tax contributions.
If over half of Virginia’s families earn under $52k a year ( 2004: median family of four), they don’t pay $10k in federal taxes. So, the lower financial half of Virginia gets little to nothing. Thanks, Congress.
And, can the taxpayer use the $10k deduction to buy a Toyota? Consider that Toyota and one of the Big 3 U.S. manufacturers both sold about 9 million cars last year. Toyota made billions in profits and the Big 3 firm made billions in losses. Increased sales may not go to the companies with the structural problems in their business model, nor may they help. It’s feel good politics for telling voters you gave them a $10k knock off the price of a new car.
The better tax policy is to just cut corporate taxes. To the bone. How much could that help a GM with over $60 billion in liabilities?
Cut income taxes. That capital will create jobs for people who will buy cars. Cut spending so the Fed borrows less – and there is more money to loan in the economy.
What are these “any number of other ailing businesses who will get tax breaks from the Feds?” This is how the tax code grew to thousands of pages. Special deals for special interests. How political –politics as usual. How anti-Constitutional. What an open door to more corruption in government.
The good news is that the legislation introduced for these ideas will die under other party chairmanship of committees – unless there are the right Liberal co-sponsors.
Sound economic policy isn’t so complicated. Spend less than you take in. Cut the sham corporate taxes. Cut individual taxes.
Good governance isn’t so difficult to understand. Don’t use the Federal treasury as an un-Constitutional piggy bank. Don’t give pork to special interests.
If one believes that “without a doubt, the federal government has a duty to assist in the country’s economic recovery,” then the answer is to not be such a big part of the problem. No bail outs. No buying votes and support for behavior modification. No backing up bad loans. No selective tax reductions for special interests.
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