Untying the Gordian knot

The US economy is in trouble and numerous bail-out plans are being suggested.  While perusing Roger Ebert's site for movie reviews I came across this - an ingenious plan to help out the economy that seems very logical and mind-bogglingly simple.  I am not an economist, but I think this can work.  Can anyone more educated in money matters point out any flaws in this plan (please focus on the plan, not on the likelihood that it will be implemented)?

Ebert writes:

(...)"The Birk Economic Recovery Plan," by one T. J. Birkenmeier. I don't have any idea who that is, but it doesn't much matter. I am fascinated by the plan. See if you can find a flaw.

I will keep it simple. Here is Birk's reasoning: The bailout of AIG is said to cost $85 billion. Birk wants to distribute the $85 billion to all of us. Say there are 200 million U.S. citizens over the age of 18. That equals $425,000 apiece. Every adult would receive that amount.

That's when Birk got my attention. Alas, the payout would not be tax free. Assuming a tax rate of 30%, that would amount to $25 billion going to the U.S. Treasury. After taxes, every adult, including of course members of the military, would have 297,500 in their pocket. A husband and wife would have $595,000.

How would you spend the money? Birk suggests:

1. Pay off your mortgage ; mortgage crisis solved.
2. Repay college loans, or put aside money for college.
3. Place in savings, creating money for loans to entrepreneurs.
4. Buy a new American car, helping Detroit out of its crisis and creating jobs.
5. Invest in the market; capital would drive growth
6. Pay for health insurance. Your parents could pay for their own.

Birk's plan would cover even those who lost their jobs at Lehmann Brothers. "If we’re going to re-distribute wealth," Birk says, "let’s really do it, instead of trickling down the puny $1,000 economic incentive that is being proposed by one of our candidates for President.

"If we’re going to do an $85 billion bailout, let’s bail out every
adult U S citizen. As for AIG, liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. (Lots of new buyers.) Let the private sector bargain hunters cut it up. We deserve it, and AIG doesn’t. And The Birk plan only really costs $59.5 billion because $25.5 billion returns in in taxes to Uncle Sam."