Monday, September 29, 2008

Theocratic National Socialists

When exactly did the Republican Party trade in its stripes of classic fiscal conservatism for whatever it is some of them now espouse? Many voted "nay" for the right reasons; others, like Rep. Tom Price (R-GA) mainly held out for a variety of dogmatic reasons, namely the irresponsible lowering of capital gains taxes without showing any real fiscal restraint (beginning at about 5:50 into the clip):



I'm the first (well, maybe not the first, but definitely not the last) to admit that lower capital gains taxes are a great help to investment and GDP growth in the long run. There are several problems with invoking these cuts in the current crisis. First, we are not in a debate over long run economic performance, we are in a crisis of financial liquidity to the banking sector. Second, a percent or two cut in capital gains tax rates is unlikely to have much impact on the aggregate because private investors are scared shitless (technical term). Third, as it pertains to the current problem, capital gains tax cuts are unlikely to have a substantial impact for the sector in crisis. Even if the across-the-board cuts are generally a good thing, they would do quite a bit to cut government revenue while doing little to supply private funds to the financial sector because private citizens will avoid those corporations and institutions that are vested in securitized mortgages. Finally, there are more efficient and effective ways of reforming capital gains taxes that would have a greater impact on the amount of money invested than cutting the rates would. Namely, the value basis for calculating the gains should be deflated against price changes, which would increase the level of certainty about the net after-tax returns to assets for any tax rate.

This is an issue for another day, however. The priorities for the here and now are: 1. supplying funds, and; 2. implementing warrants to hedge the government's outlays against information asymmetries whereby firms that dump the most toxic assets for prime prices will have to pay a return for the changes to make up the difference between what they got from DOT and what the toxic assets were worth.

What's more disturbing, is the fact that Republicans, in large part, are becoming less like the true fiscal conservatives they've always purported themselves to be. What they do these days, more and more, is buy your vote with: 1. tax cuts; 2. government intervention in their own pet industries, directly through spending in non-entitlement areas, and indirectly through subsidies, tax loopholes, and no-bid government contracts, and; 3. distracting middle/working class issues by raising nationalism and xenophobia while attempting to monopolize religion and morality.

Stop drinking their Kool-Aid.

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