Paying for the bailout

As most everyone who reads knows, the US is currently going through a pretty tough discussion about a $700 billion bailout for the financial system. There is much said around how the money ought to be used and what kind of controls should be put around it but one part of the discussion that seems to have been missing is how we’re going to pay for this.

$700 billion is a pretty large figure (TechPresident has a good post that puts it in perspective) and it’s one that will only increase the national deficit.

But interestingly, there’s a way to cover the $700 billion. If we are in a time of crisis, we all have to tighten up our belts: the president has said that the alternative is a really bad economy so I’d assume we are all in this together and we all need to pull in. With the figure of $700 billion being rougly $2300 per person, there’s no way we can ask for everyone to chip in that exact amount. But what if we decided to spread paying it back over several years.

So I started playing with the national budget simulator, a handy little tool which has older budget figures but can give us some ideas.

The first thing I did was repeal the Bush tax cuts from 2001 and 2003. If we are in an economic crisis, we have to figure out a way to get the country back on track so repealing tax cuts that were creating when the economy was arguably in a better state might do the job. Doing so against the 2006 Budget would have yielded $294.88 Billion. That gets up about a third of the way through paying for the bailout. So, if you repeal the 2001 and 2003 tax cuts over a 3 year period, you pay for the bailout. In times of crisis, that might work.

But that was the easy part. What if we need to pay for this in one shot. If that’s the case, we’d need to find another $400 billion in the budget:

  • Get rid of reconstruction aid for Iraq gets us $6.84 billion. With $80 billion in oil revenue currently running for the Iraqi government, we could argue they can cover their own reconstruction cost and eliminate this.
  • Cutting untaxed foreign profit would yield another $15.74 billion. You could argue that in times of crisis, we need to focus on internal profit and foreign profit is fair game.
  • a 20% cut in defense research and development would yield another $13.62 billion (from base of $68.129 billion) but slow down our ability to develop new weapons.

But those are all small cuts and other cuts could have negative impact on the economy so, looking at most of the budget, the only way to get anywhere near the $700 billion mark would be to repeal those tax cuts from 2001 and 2003. They were expensive then but are now downright unaffordable and one could argue that it would be our patriotic duty to cut them.

Ideas, comments, suggestions as to how to raise the $700 billion are welcomed in the comment thread.

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