How to Save a Bailout: Make it bigger

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Question: How to make a $700 billion bailout more palatable to congressional naysayers who object to saving bankers from loans they never should have made?

Answer: Raise the price tag to $850 billion, by spreading the government giveaways well beyond Wall Street.

Or, at least, that’s what you do if you are the Senate in an election year.  Yesterday’s 74 to 25 passage of the bailout bill—cloaked in overheated rhetoric about stopping the impending economic implosion—was turned into “business as usual” by senators who saw an unexpected opportunity to pass tax cuts that had seemed destined to have to wait for the new Congress.

So, in addition to making the Treasury the bad loan buyer of last resort, the Senate extended the business research and development tax credit, expanded the child tax credit, reduced the impact of the alternative minimum tax, provided tax breaks for natural disaster victims and renewed tax incentives for solar and wind energy projects.

Christmas in October!

All that adds up to an estimated $150 billion in cuts over ten years.  Additionally, the Senate bill includes some offsetting tax increases that are supposed to raise around $44 billion. These mostly target politically unpopular hedge funds and oil and gas companies.  

For a country already living far beyond its means—which is the root of the problem that produced the financial crisis—the Senate vote demonstrated that Washington doesn’t yet get it.