The current government-sponsored bailouts disappoint to such a degree they are becoming self parodies. Among the disappointments:
- Very expensive. Not billions, but trillions of taxpayer dollars are on the line.
- Opaque. Which companies have how much? For what? Under what terms?
- Only marginally effective so far. LIBOR is down somewhat, but is much lending really reviving?
- Tops-down. Rewarding failure, mismanagement, even incompetence and neglect of duty.
Rather than ladling trillions more into the same troughs, maybe we should consider a different approach that has the following properties:
- Relatively inexpensive (billions not trillions).
- Transparent, simple, and clear. Can be explained in few sentences.
- Bottoms-up. Rewarding ordinary Americans who save and invest.
While there likely many ideas that meet these properties, here’s my stab at a legislative solution.
- Make the first $2500 of interest earned in FDIC-insured vehicles (e.g. savings accounts) in 2009 exempt from federal tax.
- The deductibility of investment losses against earned income would be doubled to $6000.
- U.S. Stocks (including ETFs) purchased in 2009 and held for over 18 months would be exempt from capital gains up to $20,000. Additionally, after 12 months, dividends on such stocks would be tax-free up to $2500 per year… indefinitely.
- A simple $1000 stimulus rebate to everyone who paid taxes in 2008.
These measures would be retroactive to Jan 1, 2009 if the legislation passes after that date. I believe these measures would be simple and effective. They would result in more money for lending and turbo-charge the stock market. The wealth-effect from increased stock market prices would spur capital investment. A psychological boost would likely ensue as everyday Americans realize that the “bottoms-up bailout” is going primarily to themselves and their neighbors, rather than wall street and corporate board rooms.
Well, this is likely just some wishful thinking. I hope it stimulates some different thinking. I am ever hopeful for the USA, based on the character of our people and our tradition of creativity and entreprenurial action.