DURING last week's battle over a federal rescue for Detroit's automakers -- after a deal had passed the House but before it collapsed in the Senate -- the Gallup Organization summarized its latest findings: "Bailouts Aren't Increasing Consumer Confidence."
To put it mildly. More than 60 percent of Americans now rate the economy "poor"; a whopping 82 percent expect economic conditions to get even worse. "Americans seem to be suffering from so-called ‘bailout fatigue,'" Gallup observed, "opposing not only the auto bailout, but also the original $700 billion financial-institutions bailout. . . .What has been happening in Washington, D.C., has seemed to do little to boost consumer confidence and may be doing just the opposite."
It's no wonder Americans are dispirited. For months they've watched the Bush administration, congressional Democrats, and the Federal Reserve fling hundreds of billions of dollars at this economic crisis. Yet the more Washington has spent, the worse the crisis has grown.
Unemployment is at a 26-year high. Stocks are in the dumper. Sales are tumbling. Retirement funds are bleeding. The deepest recession since World War II is underway, and Washington seems to think that the way to make things better is to keep pumping out staggering amounts of money it doesn't have for the relief of powerful corporations like Citicorp, AIG, JP Morgan Chase, and Fannie Mae.
No one actually knows how much all these "bailouts" will eventually add up to, but Bloomberg calculated recently that Americans are on the hook for as much as $7.7 trillion. Other estimates go even higher. The investment website Fool.com puts the total amount pledged -- "the combined total of existing and announced outlays from the Federal Reserve and from US government agencies that are directly attributable to the financial crisis" -- at nearly $8.6 trillion.
This is spending on a gargantuan scale, far and away the largest outlay in US history. Granted, some of it is for loan guarantees that may never be needed. But there is also no guarantee that these mammoth commitments will do anything to revivify the financial markets. They haven't yet and show no sign of doing so anytime soon. So, yes, Americans should be dismayed. The government's bailout-and-stimulus frenzy is driving the national debt to stratospheric levels -- remember, this is all borrowed money -- while doing little to invigorate the economy.
US Representative Louie Gohmert has a better idea. The third-term Texas Republican proposes to strip Treasury Secretary Henry Paulson of his authority to spend the $350 billion remaining in the $700 billion bailout fund Congress created in October. Instead of being doled out to well-connected banks and Wall Street investment firms, the money would be used to finance a two-month federal tax holiday for every American taxpayer.
Each month, Americans pay about $101 billion in personal income taxes, plus $66 billion in Social Security and Medicare withholding. So a two-month reprieve from these taxes would actually cost less than the $350 billion left in Paulson's bailout pot, Gohmert points out, "but it would provide significantly more relief to taxpayers as well as a greater economic boost." Giving Americans two months off from paying federal income and payroll taxes would prove a far more potent "stimulus" than any plan dreamed up by Treasury aides and Capitol Hill bureaucrats. Anything a few hundred Washington operatives can do with that bailout money, 150 million American workers and entrepreneurs can do better, faster, and smarter.
"Imagine," says former House speaker Newt Gingrich, who backs the Gohmert proposal, "how many people could pay down some of their debt, how many will be able to rebuild some of their retirement funds, how many . . . might start a new business or expand their existing business." And all without the need for bureaucratic oversight or centralized control.
Granted, a two-month tax holiday isn't ideal. The best economic medicine right now -- the best way to stimulate new spending, investment, and saving -- would be a permanent reduction in marginal tax rates. Once upon a time, this would have been the natural Democratic prescription; as President Kennedy explained in 1962, "the most direct and significant kind of federal action aiding economic growth" is to "reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system."
Alas, the politics of the Democratic party have changed since then. Gohmert understands that a Democratic-controlled Congress isn't going to enact long-term tax relief, so he isn't pushing for it. But those bailout funds have already been legislated; the only question now is how they should be spent. Would we be better off plowing the money into new corporate welfare for mortgage lenders and insurance giants? Or leaving it in the hands of the men and women who earned it, to be used as they deem best?
(Jeff Jacoby is a columnist for The Boston Globe.)