The House GOP Alternative
The House Republican alternative to the Senate compromise plan (I say this because the Paulson plan is, at this point, dead) is to be unveiled at noon today, so I’ll be interested to see what it contains. However, I can tell you that there’s at least one aspect unveiled so far that simply doesn’t make sense at all.
The RSC plan, which will be unveiled at noon, calls for a two-year suspension of the capital gains tax.
“By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy,” an outline of the proposal said. “After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.”
How does this help? The problem we’re facing is the crash in the housing market, which has caused mortgage-debt related instruments to decline in value. We’re not sure how much, but we know that it’s been a steep decline and that at present, the assets aren’t worth that much.
So how is a capital gains tax suspension going to help, exactly? In order for the tax to apply in the first place, there have to be capital gains. The crisis we face is one of steep capital losses. This doesn’t address any aspect of the problem at all.
Now, I understand that this capital gains tax suspension isn’t the end-all, be-all of the House GOP plan, but the very fact that it’s in there at all is just bizarre.