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  • A Keynesian Christmas Present: Rep. Louie Gohmert's Tax Holiday

    Rep. Louie Gohmert, R-TX (Photo by Scott Ferrell/Newscom)

    Rep. Louie Gohmert (R-TX), champion of a federal tax holiday, faced skeptical questions today about his idea to give the economy a boost. Gohmert wants to stop collecting taxes for two months — using the unspent $350 billion from the Wall Street bailout to pay for the plan.

    Although his idea has gained momentum on Capitol Hill with Republican lawmakers and former Speaker Newt Gingrich, conservative and libertarian bloggers who met with Gohmert at Heritage asked tough questions of the Texas congressman. (Listen to the briefing on BlogTalkRadio.)

    Most wanted to know why Gohmert was pushing a short-term tax holiday rather than a long-term solution such as cutting capital gains or reducing corporate taxes. Gohmert said it boiled down to political reality. With Democrats controlling 256 seats in the House, there’s little Republicans can do to enact long-term tax relief.

    “We don’t even come close to having the votes with Pelosi in charge,” he said. “We have got to get better tax reform than we’ve had. But the reality right now is that no matter how hard America is hit, this is not a solution this Congress is going to look at.”

    Despite the long odds, Gohmert said he was optimistic. “I think it could happen. Otherwise, I wouldn’t be doing it.” He said he hopes the issue would inspire the kind of passion last seen during the gas price protest in August.

    “If there’s enough outcry from the American public, they’ll get a Democrat’s name, slap it on my bill and pass it,” Gohmert said. “And you know what, I don’t care. As the old saying goes, it’s amazing what you can get done if you don’t care who gets the credit.”

    Heritage’s Stuart Butler last week explained why a federal tax holiday won’t work. This is a classic form of Keynesian fiscal strategy, Butler argued, which has a dismal track record:

    There are several factors behind the failure of temporary tax holidays to stimulate economic recovery. One reason is that even if the key to future growth was to increase household spending, a tax holiday will not prompt the necessary splurge. That is because Americans adjust their spending according to what economists call the “wealth effect.” When the value of their stocks or housing is going up, as it did for many years, Americans tend to save less and spend more. But when their housing values and stock portfolios have plummeted, as in recent months, the first thing Americans tend to do with unexpected cash is to try to replenish their wealth by increasing savings or paying down their credit card debt.

    If not a tax holiday, then what? Butler outlined four steps he’d like Congress to pursue:

    1. Further extend or make permanent the tax rate reductions of 2001 and 2003, which are set to expire in 2010, including a repeal of the death tax.
    2. Reduce the corporate tax rate to 25% or lower for at least 10 years, and preferably permanently.
    3. Further reduce marginal income tax rates for at least five years, which would improve anticipated future after-tax family income.
    4. Extend so-called “bonus appreciation” for at least two more years, allowing a business to deduct 50% of the cost of equipment in the year of purchase.

    Gohmert, when asked about permanent tax relief, was apologetic for the GOP’s failure to accomplish more on the issue when it had control of Congress. He said it wouldn’t stop him from pushing forward with the tax holiday, however.

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    3 Responses to A Keynesian Christmas Present: Rep. Louie Gohmert's Tax Holiday

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