Don’t Panic: Fix real economic problems

House Speaker Newt Gingrich of Georgia

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Former Speaker of the House Newt Gingrich has some excellent ideas for rescuing the economic engine of the United States without sinking $700 billion into failed companies and bad investments on shaky mortgages.

Four reform steps will have capital flowing with no government bureaucracy and no taxpayer burden.

First, suspend the mark-to-market rule which is insanely driving companies to unnecessary bankruptcy. If short selling can be suspended on 799 stocks (an arbitrary number and a warning of the rule by bureaucrats which is coming under the Paulson plan), the mark-to-market rule can be suspended for six months and then replaced with a more accurate three year rolling average mark-to-market.

Second, repeal Sarbanes-Oxley. It failed with Freddy Mac. It failed with Fannie Mae. It failed with Bear Stearns. It failed with Lehman Brothers. It failed with AIG. It is crippling our entrepreneurial economy. I spent three days this week in Silicon Valley. Everyone agreed Sarbanes-Oxley was crippling the economy. One firm told me they would bring more than 20 companies public in the next year if the law was repealed. Its Sarbanes-Oxley’s $3 million per startup annual accounting fee that is keeping these companies private.

Third, match our competitors in China and Singapore by going to a zero capital gains tax. Private capital will flood into Wall Street with zero capital gains and it will come at no cost to the taxpayer. Even if you believe in a static analytical model in which lower capital gains taxes mean lower revenues for the Treasury, a zero capital gains tax costs much less than the Paulson plan. And if you believe in a historic model (as I do), a zero capital gains tax would lead to a dramatic increase in federal revenue through a larger, more competitive and more prosperous economy.

Fourth, immediately pass an “all of the above” energy plan designed to bring home $500 billion of the $700 billion a year we are sending overseas. With that much energy income the American economy would boom and government revenues would grow.

I don’t know enough about the mark to market rule to be able to judge it, but the other three are such incredibly good ideas they should be passed anyway. The only idea I’d add would be to repeal the income tax and go to the fair tax. A flat income tax would be almost as good. Oh, and fix the Social Security and Medicare disasters-in-waiting that will make us nostalgic for the good old days of the Fannie Mae and Freddie Mac meltdown.

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One thought on “Don’t Panic: Fix real economic problems

  1. Now that I understand mark to market, I agree completely that it should be suspended and then repealed. What M2M does is value every product in inventory with the price of the last product to be sold. So if a shoe store sells a $100 pair of white shoes for $50 after labor day, then the value of the rest of the identical shoes drops by half. If the store sells a pair of the white shoes for full price, then suddenly all the other shoes in inventory become twice as valuable. If a company has a lot of very valuable but identical products in inventory, f’rinstance investment houses holding these big subprime loan products, and one unit gets sold at a low price, then suddenly the value of the whole inventory drops drastically. If the numbers are big enough a single low-priced sale can drive a company’s balance sheet into technical bankruptcy. This is an accounting rule that creates instability in the financial market instead of stability. That’s the problem with it.

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