How About a Market-Based "Bailout" for Auto-Makers?

WASHINGTON - Government bailout or bankruptcy for automakers? How about the third option presented in an op-ed in the WSJ's OpinionJournal today by Congressman-elect Jared Polis (D-CO)?

The incoming congressman-elect from Colorado has a savvy business background as the founder of proflowers.com and bluemountain.com and has this idea which certainly has merit:

If we as a society place a public premium on "saving" the automobile industry from its default reorganization under Chapter 7 or Chapter 11 bankruptcy -- which has been good enough for the steel and airline industries, among others -- then a better manner in which to express that premium might be to establish special tax consideration for those who are willing to take on the risk. One way of doing that is to provide an exemption from capital-gains taxation on all debt or equity instruments used in the next six months to invest in the troubled auto makers.

By waiving the future capital-gains tax on all investments in the automobile industry, we enhance the projected return models and therefore the likely occurrence of a privately funded "bailout." There are turnaround firms and funds, and they are experts at what needs to be done. Tax exemption for gains would certainly get their attention. It also wouldn't cost taxpayers anything because it only forgoes future government revenues that wouldn't exist absent this incentive...

My Washington Times op-ed on "Obamanomics"

Politics is always a fascinating spectator sport and watching the transition of President-elect Obama has been no exception, particularly when it comes to the influence of his newly announced economic team in the current administration and proposed plans for economic stimulus.

You can read my report card on Obamanomics so far as well as some important tax cutting steps including capital gains that the President-elect should consider in my op-ed in today's Washington Times:

He gets an "A+" for expectations. Mr. Obama has done a thorough job of painting the economic realities of this crisis and has made it clear that it requires much more than a quick fix.

And "A" for the president-elect's economic team. The triad of Mr. Geithner as Treasury Secretary, Larry Summers as White House National Economic Council "czar" and Christina Romer as chair of the President's Council of Economic Advisers can't be beat. Add Paul Volcker as Chairman of the president-elect's new Economic Recovery Advisory Board with Austan Goolsbee as the Board's chief economist, and key players like Peter Orszag as budget director, among others, and you have a solid economic team. This is a team of free traders, centrists, supporters of earlier financial deregulation and proponents of capital formation. (Full disclosure, Messrs. Summers and Volcker have both served on the board of the American Council for Capital Formation (ACCF)).

A "C" is for the Obama fiscal stimulus package to date. The good news is that the economic recovery plan is still evolving. The rumored cost of the package, $700 billion or 4-to-5 percent of GDP, is a big number but commensurate with the size of the problem. It includes spending on infrastructure, education, and "green jobs," but it ignores the powerful impact that tax policy can have on economic growth. Therefore it does not warrant an "A."

President Kennedy proposed reductions in marginal individual tax rates, corporate income tax and the capital gains tax because of the impact on "investment, the mobility and flow of risk capital and the strength and potential for growth of the economy." Mr. Obama should do likewise to meet his short-term goal of jump-starting the economy and providing for long-term economic growth, job creation, international competitiveness, sensible energy policy, and retirement security...