Washington asks $700B trick question

So just how much does a “$700 billion” bailout of Wall Street actually cost, anyway? That was the billion-dollar question around Washington on Monday, as House, Senate and administration officials continued to haggle over the details of one of the federal government’s single biggest expenditures.

But exactly how big of a dent the bailout will make in the federal budget is unclear.

{mosads}The Congressional Budget Office (CBO), which is responsible for “scoring,” or estimating the impact on the Treasury of every bill that comes out of Congress, hasn’t said. In fact, the CBO is still chewing on the numbers behind the government’s $85 billion bailout of AIG last week, trying to determine how that investment will be applied to the government’s balance sheet.

House Financial Services Committee Chairman Barney Frank (D-Mass.), Treasury Secretary Henry Paulson and a number of economists have said the amount could be far, far less than the $700 billion authorization being called for, especially if the government can hold onto the troubled securities it buys long enough for the stock and housing markets to turn around and substantially increase the value of this “paper.” In fact, the government may even be able to make a profit on the deal in the long run, they say.

But even the immediate cost is uncertain, and will depend on a number of different variables, including, but not limited to, the price the government pays for securities that are so hard to put a price tag on.

And then there’s even the idea — being floated quietly, as of now — that the $700 billion authorization the Treasury Department is asking for won’t be enough to unclog the market.

Asked about this on Monday, Frank could not say he was 100 percent sure that the $700 billion would be enough.

“Not entirely confident,” he said in response to a question about his level of confidence in the working figure of $700 billion getting the job done. “We think it will clearly help if it’s done right.”

If it is done “right,” even proponents of the plan say the Treasury Department — which will have to borrow the hundreds of billions of dollars it will use to buy these illiquid assets from banks — will be committing so much government money that the next administration will have to entirely recast its domestic policy agenda — which, as of Monday, neither campaign said it would do.

“This cripples the domestic policy priorities of the next president, whoever it is, because it soaks up so much cash,” Rep. Jim Cooper (D-Tenn.), a senior member of the Budget Committee, said last week.

But the fact that neither Democratic presidential nominee Barack Obama nor Republican nominee John McCain say they are ready to curtail their significant policy plans — which for Obama means greatly expanding healthcare and for McCain means extending President Bush’s tax cuts — could give even their strongest supporters in Congress fits when budget writers and appropriators are looking at a $500 billion or higher budget deficit and at least $11 trillion in national debt.

{mospagebreak}Even Frank acknowledged that the plan will likely hamstring the next president.

“Yeah, that will cause some problems and we’ll have to deal with them,” he said Monday.

More immediately, the staggering price tag of the Wall Street bailout plan is giving some members of Congress fits right now.

{mosads}“Congress must not hastily embrace a cure that may do more harm to our economy than the disease of bad debt,” Rep. Mike Pence (R-Ind.), who is advocating a defeat of the Treasury proposal, said over the weekend. “If Congress decides to spend nearly $1 trillion on a corporate bailout, it must find budget savings to prevent that cost from being passed along to the American people.”

Short of that, Pence suggested that an indexing of the capital gains tax to inflation or suspending it altogether for one year would “release an enormous amount of capital into our economy” and help defray the costs.

Another group of skittish members — and from a very different neck of the woods than Pence and the conservative Republican Study Committee — is also saying that money for the Wall Street bailout cannot be borrowed.

But this group, currently led by Rep. Brad Sherman (D-Calif.) and calling itself the “Skeptics Caucus,” is advocating for tax increases to offset the hundreds of billions needed to stabilize the financial sector.

“The people benefiting the most should step up and pay the cost,” said Rep. Peter DeFazio (D-Ore.) during the first meeting of the Skeptics Caucus on Monday. DeFazio suggested levying a surtax on millionaires or restoring the capital gains tax to pre-Bush levels, which he said would immediately bring in $35 billion and “should pay this back in something like 30 years or so.”

“The burden should not fall on us,” Rep. Lloyd Doggett (D-Texas) said at the meeting. “Why are we not asking President Bush to explain how he wants to pay for this?”

Mike Soraghan and Jackie Kucinich contributed to this article.