Dear Member of Congress:
On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to view yesterday's breakdown in negotiations over the Treasury Department's $700 billion bailout not as a failure but as an opportunity. Instead of hastily approving a deeply flawed plan that would have placed breathtaking burdens on taxpayers with no oversight, Congress now has a chance to cut through the hysteria and craft a measured response to the day's financial challenges.
NTU previously sent a letter outlining general principles and as negotiations continue today and through the weekend, we commend Members of both parties who are attempting to craft a more reasonable response to this crisis. Any plan that focuses on pro-growth tax policy and regulatory reform is more likely to pave the way for a smooth recovery than simply using tax dollars to buy up Wall Street's bad paper.
The plan being pushed by Treasury Secretary Henry Paulson and the Bush Administration sought a tremendous amount of money and power without an ounce of oversight from Congress or the courts. Many, both inside Congress and out, rightly expressed serious reservations about such an agreement.
The plan authored by Senator Chris Dodd (D-CT) thankfully strengthened oversight, but largely adhered to the flawed structure of the Treasury outline and contained some toxic provisions. These included giving an ownership stake for government in companies that are bailed out and perpetuating an affordable housing slush fund. The House Republican plan attempted to steer a more prudent course by focusing instead on insurance for mortgage-backed securities (still a somewhat risky proposition) and tax policy to solve the problem. The Republican Study Committee (RSC) plan was even more thoughtful, by providing for privatization of Fannie and Freddie and suspension of harmful accounting rules such as the "mark-to- market" procedure on mortgage paper.
However, these elements still only comprise part of a long-term solution to the problem. Any plan should permanently restructure accounting rules that force massive write-downs for institutions, some of which could otherwise hold the securities to maturity without fear of failure. The entire morass of Sarbanes- Oxley accounting regulations, which have imposed tremendous paperwork burdens on private firms for few gains in transparency, must be overhauled. The RSC's Fannie Mae and Freddie Mac divestiture plan should be codified with an aggressive and enforceable timetable. The inflation tax on capital gains should be eliminated and, at the very least, the 15% rate should be cemented into permanent law, if not lowered or scrapped entirely.
Over the longer term, Congress must either repeal or significantly reform the Community Reinvestment Act, which proliferated subprime mortgages and helped build today's house of cards. Legislation (H.R. 6659) to foster a private "covered bond" market capable of providing the liquidity to alleviate some mortgage market disruptions is worthy of consideration. The entire range of powers currently given to federal government and Federal Reserve officials should be reviewed with an eye toward establishing clear boundaries that all actors understand and respect in the future.
If Congress insists upon a more interventionist solution, it could pursue a voluntary "pay-to-play" fund for temporary insurance guarantees of mortgage-backed securities with either hefty premiums based on risk or substantial discounts if some quasi-private agency is to serve as a temporary facilitator of asset auctions. Those firms participating would be subject to strict disclosure requirements of their finances, while those choosing not to do so would by their action help to reassure investors of their own sound condition.
Even better, some have suggested a tax-exempt private reinvestment pool which would protect investments from capital gains, corporate, and repatriation taxes and allow individuals to secure a tax-free deal. No matter the course Congress chooses, it must have bona-fide transparency, including full access to records through the Freedom of Information Act and whistleblower protections for individuals who seek to warn of trouble on the horizon.
Many Members of Congress have appeared on television and radio in recent days proclaiming that we are in a crisis and will need to sacrifice in order to solve it. If that is indeed the feeling on Capitol Hill, it hasn't yet translated into action. Just yesterday, the House of Representatives passed a continuing resolution with more than 2,600 earmarks worth $16 billion and a bailout for automakers. The Senate will soon take up a "stimulus" bill which simply spends dollars that have already been removed from our economy on such vital priorities as an "artist-in-residence" program in Utah. It seems the one industry that faces no threat in America today is big government.
Over the past week, you have doubtless heard from many of your constituents, the vast majority of whom are appalled at the prospect of any bailout using taxpayer dollars. The financial conundrum is difficult and complicated, but the will of your voters and our members is as clear as can be. As a result, roll call votes on any bailout plan will undoubtedly receive weights of up to 100 in our 2008 Congressional rating, among only a handful of votes in the last decade to have reached that milestone.
Sincerely,
Pete Sepp
Vice President for Policy and Communications