You Want Private Capital in Banks? Cut Taxes.

| March 15, 2009 | Reply

This is an interesting point of view from a member of the administration’s economic team.

WASHINGTON (Reuters) – The Obama administration expects private capital to bolster government funds to help the recovery of U.S. banks, Austan Goolsbee, a key adviser to the Democratic president, said Sunday.

The only problem is that the government has scared private capital away from the banking system. At every turn, Congress or the White House have intimated (or outright threatened) that governments may have to start taking over banks. Indeed, the bailout money has already come with government-control strings and healthy banks that were bullied into taking some of the cash are trying to give it back.

The irony here is that one of the best ways to get private capital into banks would be to give immediate long-term tax cuts to everyone. Critics of the GOP’s stimulus plan (heavy on tax cuts across the board) that tax cuts wouldn’t give the economy a boost because people would be more likely to stuff that money into their bank accounts or 401 (k) plans. They’re right. People will likely sock away a good chunk of any tax cut. But money in a bank isn’t money in stasis. That’s the private capital that Goolsbee is talking about but it won’t get to banks because the government is entirely too intent on using that money to stimulate ACORN or a labor union or government bureaucrats.

If the administration really wants to get private capital into banks, it should be cutting taxes and taking its grubby fingers off our banks. I suspect, though, that the President has a more coercive way of getting to that money in mind.

Category: The Economy and Your Money

About the Author ()