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John Adams Blog

The blog of The Antient and Honourable John Adams Society, Minnesota's Conservative Debating Society www.johnadamssociety.org

Monday, October 13, 2008

A Non-Socialist Proposal to Help Recapitalize the Financial System

Give new equity investments in banks made over the next 30 days a guaranteed zero percent tax rate for the next 20 years.

Given our relatively high rates of capital taxation, the IRS already is a “silent” partner as it retains a significant fraction of the upside of equity investments. Instead of, or at least before launching Mankiw’s 100% match of new equity investments in banks with government money, while retaining high rate rates on the private equity investments in banks, first eliminates the taxes on new equity issued by banks.

The 30 days limit of the proposal it to encourage banks to raise equity through new stock offerings soon, while allowing the time to issue new stock. I agree with Mankiw that new private equity investments in banks would be just wait the “economics” doctor should prescribe. This plan lets market differential the sound banks from the “zombie banks” like the Mankiw plan, but without the government ownership of private bank stock