You either don't understand the plan or are deliberately mischaracterizing it.

Here's the whole plan for your readers and not just a part taken out of context.

http://ca.news.yahoo.com/s/capress/080925/world/bailout_alternative

How predictable. There should really be an exponential capital gains tax: rate = 2^log(income).

In English, the rate would double every time you add a zero to the income. Make the maximum rate 90% and give a nonrefundable credit of up to $1600, corresponding to 16% of $10,000.

Nice try, El V.

The House GOP plan is like trying to make fried chicken by throwing eggs in a pan.

Who controls the Senate?
Who controls the House?

Democrats can make Bush's plan a reality if they want to. They want to only as long as it doesn't cost them power. The retention of power is more important to them than this crisis and that is what's holding up their passing it..

Who controls the Senate?
Who controls the House?

Democrats can make Bush's plan a reality if they want to.

And if the Republicans are actually serious about opposition to this plan, they can block it in the Senate.

In the post above, "Democrats can make Bush's plan a reality if they want to." was quoting El V. Sorry for the confusion.

I no longer understand our political system.

This doesn't make any sense to me. Paulson's plan (or any other) is a disaster waiting to happen. A majority of America hates it. Here in Minnesota, people in Keith Ellison's deep blue district are inundating him with calls to oppose the bailout. People in Michele Bachmann's deep red district are inundating her with calls to oppose the bailout. Nobody wants this, except for George Bush, his Treasury Secretary, and some investment bankers. So why is the Democratic leadership so hell bent on giving Bush what he wants?

I'm finding myself in the awkward position of cheering on rank & file Republicans for obstructing this terrible bailout plan while screaming at the Democrats I voted for because they're trying to bail out a bunch of idiots at the cost of massive inflation.

I disagree; the press and Dems shouldn't ignore the Cantor proposal as being unserious, they should attack it as being ludicrous, dangerous, and ineffective if implemented.

Base their criticism on this fact alone: suspending the capital gains tax will cost $200-$300 billion over two years (at a bare minimum; everyone will sell everything that has any gain at all in that time, prices will plummet), do very little to fix capital markets, and give a huge windfall to the richest Americans instantly. Brilliant!

And if the Republicans are actually serious about opposition to this plan, they can block it in the Senate.

There is the nukular option available to them if they believe it necessary.

They have the power. They have the votes.

So, the wingnut plan is essentially a tarted-up credit default swap system combined with an unrelated give away to the radical clerics of the Club for Growth. What fucking brilliance.

I've been thinking about suicide bombers over the last 24 hours. I find it hard to believe that the RSC can be serious and that some among them -- those whose wealth is stored away in overseas bank accounts or gold bullion -- would even themselves be hurt by their proposal.
Perhaps Krugman is right. The foot soldiers have drunk the koolaid. And it turns out that it was provided by Jim Jones rather than Ken Kesey.

Did anyone else notice Krugman referring to Paulson's original plan as the "all your bailout are belong to me" proposal?

Krugman's aware of all Internet traditions!

Damn you low-tech cyclist! I had that one! FWIW, I called that one over at Sadly, No! 5 minutes after Krugman said it. He's sort of an adorable geek.

As with religions and Communism, so too with supply-side economics: When your ideology is failing, resort to more orthodoxy.

OT, to Aatos: did you pick your name off page one of LSJ? It was the first real word in the dictionary, IIRC. I recalled it instantly from my early days in the Classics. The fact that it means 'insatiable' or 'inescapable' is even better, given the financial context.

Paul Krugman has a posse!

It truly is a case of the world turned upside down. The Democrats are stumbling all over each other to ram through the Bush/Paulson Bailout Scam, an unprecedented example of anti-democratic corporate welfare combined with malevolent neglect of the American people, who are suffering tremendously and get absolutely nothing from their alleged representatives on Capitol Hill. Perhaps the Democrats are even more foolish than I thought—did they notice that this is Paulson’s deal and that he is a minion of Bush, the president who lied his way into a disastrous war and has lied at every turn since? Even more likely, the Democrats are far more corrupt than we dared imagine.

Thanks, Dodd and Frank and Pelosi and Reid (and yes McCain and Shelby and Boehner too) for driving yet another nail in the coffin of American democracy. Thanks $700 billion worth—or is that $1.5 trillion?

The Democrats are stumbling all over each other to ram through the Bush/Paulson Bailout Scam, an unprecedented example of anti-democratic corporate welfare combined with malevolent neglect of the American people, who are suffering tremendously and get absolutely nothing from their alleged representatives on Capitol Hill.

The only ones trying to help you are....you guessed it..... Conservatives.

bruce, in terms of swallowing the kool-aid, all you have to do is read el viajero.

there's actually a decent bill shaping up, with the money in tranches, equity participation, GAO oversight, and potentially other progressive outcomes. there's some interesting alternatives floating around as well (by which i do not, of course, mean the idiocy the house republicans are pushing).

my position has been good bill beats no bill, no bill beats bad bill.

but part of what makes a good bill is that a bunch of house republicans must sign off. the dems are not going to repeat 1993 and be the responsible party while the children run wild and scream and yell and take over the microphones.

in that sense, i'm perfectly happy that the el viajero's of the world think they're defending principle: i'm willing to wait for an obama presidency and a more democratic congress and get a better measure anyhow.

Dispute:

I posted an excerpt of this on BlueMassGroup and it was brought up by others that the capital gains assertion is wrong:

... Except for the small fact that Ezra doesn't know what he's talking about. He figures that capital gains tax is the same for banks and dealers as me and you and the corporation down the street.

It's not.

Section 475 of the IRC and regs thereunder require that the dealers in these securities (dealers is broadly defined in 475(c)(1)) mark these securities to market at year end.

That is, if they're worth less now than acquired, then the banks marked them down, and now, to sell them at anything over valuation would trigger a capital gain, and therefore a motivation to hold, not sell.

by: gary @ Fri Sep 26, 2008 at 17:56:11 PM EDT

Mr. Lynne, i'm no expert in the tax code, but i read gary's link, and at no point does it say that marking to market establishes a new basis price for capital gains purposes.

i'm not going to say that doesn't happen, but i pay a reasonable amount of attention to these things and i've never heard of the notion that marking to market re-establishes your basis price for capital gains purposes.

gary has to show us a little more before we can accept that.

Thanks for the information. Here's what Gary had to say:

Read the thread (0.00 / 0) Show him more? Funny, Ezra makes a bold claim with no substantiation, yet others ask me for added information when criticized. Seems burden of proof ought go to the person making the claim.

Anyway, below's a less technical link. Note the final sentence of the quoted material.

If the person replying to the thread paid reasonable attention to this area as he claims, yet doesn't intuitively recognize that tax 'mark to market' establishes new cost basis, then he has a rather shallow understanding of the logic of the tax code. No crime mine you. It is a bit technical, but it's not so technical that it should be ignored when making such bold criticisms about a legislative proposal.

According to the IRS: "A trader in securities or commodities may elect under section 475(f) to use the mark-to-market method to account for securities or commodities held in connection with a trading business. Under this method of accounting, any security or commodity held at the end of the tax year is treated as sold (and re-acquired) at its fair market value (FMV) on the last business day of that year."

What this basically means is that all open positions at year end are "marked to market" or priced to year end market prices to close out the position on paper. Your open positions are still open, but now the the year end prices become the cost basis of these going into next tax year.