EDITORIAL: The bailout that wasn't

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The American taxpayer was done a great service yesterday when the House voted 228-205 against the Bush administration's $700 billion bailout. The tally was 133 Republicans and 95 Democrats. Although the media inundated the public with conflicting polls on Americans' support for the measure, sources on the Hill said that calls coming in from constituents were as much as 100-1 against the bailout.

Republicans could easily have taken credit for killing the bill. But instead they blamed House Speaker Nancy Pelosi. "The speaker gave a very partisan voice to this that poisoned our side," said House Minority Leader John Boehner. Other Republican leaders followed suit, including Minority Chief Deputy Whip Eric Cantor, who held up Mrs. Pelosi's speech to the cameras.

But Mrs. Pelosi's speech was not part of the bill. Many Republicans were adamant that taxpayers should bail out Americans who have failed to pay their mortgages, student loans, credit card debt and car loans. And her speech certainly did not cause 40 percent of her party to oppose it. "I do not believe that we have explored or exhausted all possible options to directly ease the pressure on financial markets without causing an undue burden to taxpayers. This legislation just does not provide enough relief and protection for the hardworking men and women who are trying to make ends meet," said Rep. Elijah Cummings, Maryland Democrat.

If Congress and the White House are genuinely interested in fixing some of the structural problems behind the mortgage meltdown, here are three things that could actually help the situation:

• Cut or eliminate corporate income taxes. Instead of spending $700 billion to bail out the mortgage industry and banks, give the economy a real boost by cutting corporate tax rates. The United States has the second-highest corporate-income-tax rates among industrialized countries. This tax steals money from IRAs, 401k plans and workers' pension plans. Cutting the tax would send a message to the private sector that Washington will reward productive, entrepreneurial activity instead of throwing good money after bad.

• Cut the capital gains tax. This tax is a monument to liberalism's perverse interest in redistributing wealth and penalizing "the rich" - even if it destroys economic growth and jobs in the process. Dating back to 1969, the federal government has repeatedly increased the capital-gains tax, losing money virtually every time. On the other hand, when the tax was cut, revenues increased. As with the income tax, cutting capital gains would be one of the best things Congress and the president can do for the economy (and for those in the banking industry and housing industrial complex who would sulk at the loss of "their" $700 billion).

• Carefully examine the link between illegal immigration and the mortgage mess. Columnist Michelle Malkin writes on her blog that many of the areas hardest hit by the foreclosure wave, among them Loudoun County, Va., happen to be some of the largest illegal-alien sanctuaries. She points out that amnesty-promoting groups like the National Council of La Raza have received millions in federal funds to counsel their clients on obtaining mortgages with virtually no money down, and Mrs. Malkin has reported how major banks like Wachovia and Bank of America have launched campaigns soliciting business from illegal aliens.

If the Treasury Department is allowed to buy bad mortgages as part of a security bond, it will own 1.4 million foreclosed homes. Many of these properties are resort-type homes and condominiums in Florida, California and Texas representing failed investments. Such properties have troubling cost offsets, including the high insurance premiums for fire, hurricanes and flooding based on geography, annual maintenance and management. The investors abandoned them because their income from the properties wasn't enough to cover the mortgage. Is the government going to spend taxpayer money on those necessary investment costs on top of the purchase price of the mortgage? Let us not forget that there have already been two hurricanes in the Gulf region that will cost billions in recovery expenses. Many of these properties may already be essentially worthless.

Some financial analysts maintain that the administration has substantially underestimated the real cost of the package, which could cost as much as $1.4 trillion. Taxpayers had other reasons to lodge complaints with Congress. First, the federal government left taxpayers exposed in a Bear Stearns bailout. Earlier this month, there was the $85 billion bailout of the AIG insurance company. Shortly afterward, the government-sponsored enterprises Fannie Mae and Freddie Mac were bailed out at a cost of $200 billion. And quietly, over the weekend, Congress passed and sent to the president legislation providing $25 billion in loan guarantees for General Motors, Chrysler and Ford. That's more than $300 billion in bailout money since the beginning of September (not including the announcement by the Federal Deposit Insurance Corp. last week that it may need $150 billion). But early Sunday morning, House and Senate negotiators announced that they had reached agreement on the mother of all bailouts - at least for the month of September.

John McCain and Barack Obama have endorsed it - sort of - while giving themselves plenty of wiggle room to denounce the $700 billion monstrosity if Congress can't reach a deal. In the House, Speaker Nancy Pelosi and other leading Democrats, as well as the Republican leaders, are still hoping to reach a deal, despite the fact that both caucuses are deeply divided. Rep. Thaddeus McCotter of Michigan, chairman of the House Republican Policy Committee, spoke for many conservatives when he denounced the agreement, objecting in particular to the pressure for negotiators to meet an arbitrary deadline for passage of the bill: "The irresponsible desire to meet a deadline solely for the sake of meeting a deadline will produce an agreement that does not protect taxpayers from this bailout." Mr. McCotter predicted that Republicans would oppose an "irresponsible, anti-taxpayer agreement," and they did.

For now the bill is dead, but not the plan. When Congress returns, lawmakers would be wise to consider dismissing the notion that a bailout deal is in the best interest of Americans. It should focus on solutions that they know can help solve this "crisis": free enterprise, deregulation and tax cuts.