As Congress increasingly balks at the Bush Administration's $700 billion Wall Street bailout proposal, the Republican Study Committee yesterday released an alternative plan to ease the financial crisis:
Two-Year Suspension of the Capital Gains [TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ]: Immediately suspend the capital gains rate of 15% for individuals and 35% for corporations. By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy. After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.
Schedule the GSEs for Privatization: Transition Fannie and Freddie over a reasonable time period to truly private companies without special government privileges and open them up to real market competition.[…] [The plan would also subject Fannie Mae and Freddie Mac to state and local taxes.]
Stabilize the Dollar: Repeal the Humphrey-Hawkins Full Employment Act which diverts the Federal Reserve's attention from long-term price stability to short-term economic growth. In an effort to fuel the economy, this additional mandate has encouraged the Fed to keep rates artificially low, fueling economic boom and busts, and now a strong up-tick in inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and the decline of the dollar (as investors free dollars for hard assets). This reform would require the Fed to establish a numerical definition for price stability and maintain a policy that promotes it over the long-term.
Suspend "Mark to Market" Accounting: Suspend the mark-to-market regulatory rules for long-term assets. These rules require financial firms to mark assets at current market levels, even where the no market exists and any immediate transactions would result in fire-sale prices. Instead of allowing firms to mark these assets to their true economic value, these rules contribute to a downward spiral as firms have to evaluate their assets not on the basis of their long-term investment but rather on a short-term mania.
Caucus Chair Rep. Jen Hensarling (R-TX) predicts that the plan would "bring as much as a trillion dollars in capital sitting on the sidelines back into the market."
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