Wednesday, December 10, 2008

Where in the Constitution is a Bailout of the Auto Industry Described?

An astute reader might have expected an economic attack of the proposed automotive industry bailout. Though the truly shrewd would also understand that some issues are actually precepts, needing little in the way of explanation. Congressman Jared Polis (D, CO) stated in today's Wall Street Journal, "Any pretension of a government bailout being a good deal for taxpayers should be abandoned for the insincere (or perhaps ignorant) rhetoric that it is." Really, what more needs to be said?

Nonetheless, even sans a team of legal experts, it is somewhat interesting to delve into the Constitutionality of the bailout. One might argue the Preamble says it all ("in order to...promote the general welfare"). Perhaps more explicitly, Article 1, Section 8 spells out the powers of the Congress ("The Congress shall have the power to...provide for the...general welfare of the United States"). These two references seem to be the closest the Constitution comes to touching on the auto industry. The definition of "welfare" is vague at best, and open to wild interpretation at worst (with the current Congress clearer in the latter camp).

This, of course, begs the question of how exactly bailing out the auto industry promotes the general welfare of the United States. It is barely debatable whether it even promotes the welfare of the auto industry itself. The answer is that it simply does not.

As a side note (though of great importance nonetheless), Congressman Polis' piece was a suggestion to cut capital gains taxes on investments in the auto industry. He is correct in theory, but wrong in practice. Government should not be determinative in the allocation of capital. Thus, the solution is to simply eliminate all capital gains taxes.

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