Entries for October 2008

 In an E-mail, liberal economist Dean Baker of the Center for Economic and Policy Research notes that if Americans push their savings rate from the current 1.3 percent to the post-WWII average of 8 percent, it would imply a fall in annual consumption spending of roughly $700 billion.

It just so happens that makes for a nice compromise number for a possible 2009 stimulus package from the Obamacrats. (I have bean hearing numbers from $500 billion to $1 trillion.)  Of course, Americans won't feel as impelled to save if we get a nice rebound in net worth from a new bull market in stocks, but that might not happen if we get higher investment taxes and the elimination of tax breaks for retirement plans. Hmmmm ....

 "You know, writing about this is dangerous in the current political climate," is what a Democratic congressional aide just said to me concerning my blog posts about how liberal Democrats seem to want to disappear the Investor Class. By "dangerous," I assume he means it doesn't play well with voters. (Indeed, John McCain has picked up on this theme in his stump speech.) If you are tuning in late, let me recap the reasoning behind the accelerating movement to tax retirement plans:

1) Investors tend to be for things liberals don't like, such as big tax cuts, smaller government, and Republicans. This is the political rationale behind Republicans pushing for an Ownership Society.  It's kind of like how government workers tend to prefer bigger government and Democrats.

Portfolio's Matt Cooper suggests that Barack Obama wouldn't raise taxes if elected because no one cares about the deficit right now. (Other than raising, of course, income tax rates on rich folks.) What they care about is avoiding a depression. About that, I will say this: Our economics troubles do provide all the excuse in the world to justify any and all spending increases by calling them stimulus. The fallout from the credit catastrpophe is really a blessing for a future Obama administration since it helps it avoid making any hard choices.  Of course, it also kind of chucks away the party's hard earned reputation a deficit fighters (though much of that was from slashing defense spending -- as Obama may also do). So long, Clintonomics!

One point lost during this presidential campaign is that Democrats want higher energy prices as part of their "green" agenda. Using that logic, they should be calling for higher taxes to prop up the price of oil. But analyst Pete Davis of the outstanding Capitol Gains and Games blog doesn't see that happening.

There are at least two pretty effective ways to turn someone into a Republican: (1) get them married with kids and (2) get them to invest in the stock market. So, if I were a highly paid Democratic political strategist, I would make sure to spend a few minutes every day thinking of ways to get Americans out of the stock market—the faster, the better. And that's why if Barack Obama is elected president next week, 2009 may well bring a concerted and all-out effort by the Obama administration and a Democratically dominated Congress to turn the generally pro-Republican Investor Class into an endangered class by, among other tactics, raising investment taxes and ending the tax preferences for 401(k)'s, IRAs, and other retirement accounts. Here is the emerging battle plan for Operation Investor Class Rollback:

1) Hike Investment Taxes. Obama wants to raise capital gains taxes even though he has kinda, sorta admitted that it might be bad for the economy and might actually decrease tax revenue to the government. For now, he's talking about raising the highest cap gains rate by one third to 20 percent, though earlier in the campaign, he floated pushing it as high as 28 percent, a near doubling. (Recall that Democratic presidential contender John Edwards wanted to raise it as high as 40 percent, a move that was applauded by liberals who want investment income to be taxed as onerously as labor income.) With the next administration facing a trillion dollar budget deficit—maybe more—there will certainly be pressure to raise taxes to higher levels than now being suggested.

Teresa Ghilarducci is the director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research and the author of the book When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them. She also wants to see 401(k) and Individual Retirement Accounts replaced by "government retirement accounts." (Yes, I am having a bit of fun with the "most dangerous" tag.) In an interview with my guy, Kirby Wilbur of KVI 570 AM in Seattle, Ghilarducci says one of her goals is—you guessed it—to "spread the wealth." Go about 12 minutes into the interview to hear it for yourself, gang.

Here is the short version coming from inside Team McCain: 1) McCain is surging and is now essentially tied across the battleground states—including Pennsylvania; 2) the so-called Hillary Clinton voters—rural, noncollege—are flocking to McCain; 3) more and more voters perceive Obama as "liberal"—more so than Gore or Kerry or really any other Democratic nominee in a generation. The "spread the wealth" comment is hurting him big-time. Let me also add that I am now hearing more and more about McCain winning the electoral vote and Obama winning the popular vote. Let the litigation begin!

Looks like someone over at Team McCain is reading CapCom, especially my blogging about a plan floating around Capitol Hill to start taxing retirement plans like 401(k)'s and IRAs. This, from McCain's new stump speech:

This Democratic Congress is planning all sorts of new taxes. This week, we are hearing they want to tax your 401(k) contributions. This is a time when we need to be encouraging more investing, not taxing it. We can't let them get away with making a bad economy even worse. Now is the time to grow our economy, and that's what I'm going to do.

"Just because I am losing, doesn't mean I'm lost, doesn't mean I'll stop."—Coldplay. Yesterday's nearly 1,000-point gain by the Dow industrials, I think, was partly due to a recognition by Mr. Market that Mr. McCain might actually pull this thing out. (Yes, yes, the rebound in the commercial paper sure helped, too.)

Polls are tightening. McCain-Palin has been given message clarity by the emergence of Barack Obama's "spread the wealth" message, opposed by more than 80 percent of Americans. I also think voters are realizing that Obama plus a Democratic Congress (as the old Russian proverb goes, "You don't buy a house, you buy a neighborhood") might mean a kind of lurching change to the left that a basically center-right nation might not want (such as getting rid of the tax benefits for 401[k] and other retirement plans like IRAs).

At the crazy cool Pop! Tech conference, Juan Enriquez, chairman and CEO of Biotechonomy, a life sciences research and investment firm, outlined 10 proposals for the administration. Here they are, courtesy of superblogger Arnold Kling:

1. We have to save the dollar (AAA rating in jeopardy)

2. We have to fundamentally and brutally restructure debt

3. All entitlements are fair game. To begin with...

I am hearing that it is not out of the question that superinvestor Warren Buffett would join a Barack Obama administration as treasury secretary. Buffett's economic philosophy as interpreted by Obama: "Let the market work, however way it's going to work, and then just tax the heck out of people at the end and just redistribute it. That way you're not impeding efficiency, and you're achieving equity on the back end." 

NRO's Byron York notices that Team Obama seems to be lowering the income threshold that determines who gets an Obama "tax cut." Let's put it this way: If you make more than $150,000, don't bother looking in the mailbox. And we are rapidly approaching the threshold where a married couple—the proverbial cop and school teacher—may be regarded as rich. Strange.

One smart Capitol Hill observer E-mails me: "In my view, the Democrats will have a working majority even if they fall a few votes short of 60. One of the close races is Maine, but Republican Senator Susan Collins appears to be pulling away. If she wins, Democrats will often be able to get her vote and that of her Republican colleague Olympia Snowe on most domestic issues." 

"Why didn't the feds bail out my tech fund back in 2001?" I've heard plenty of comments like that during the past month or so. Well, a new piece of analysis over at the fine VoxEU site explores the possibility of Uncle Sam's buying stocks to shore up a plunging market. Economist Frank Heinemann posits that if the market should fall below a level that is "clearly below the present value of expected future revenues," the Federal Reserve could theoretically "temporarily guarantee a lower [limit] for the S&P 500 through targeted purchases of market portfolios via open-market operations and financed by injecting cash." Yet Heinemann does admit that this would create a smidgen of a moral hazard problem:

This action would continue to create a moral hazard problem in the future, as market participants would expect that the systemic risk in future crises would be borne by the Fed. On the other hand, current actions aimed at refinancing and recapitalizing banks have the same effect—but even more, because they are directly aimed at helping those institutions that created systemic risk. The latter creates a bailout arbitrage in which institutions have an additional incentive to magnify systemic risk.

Here's a bit more on that plan floating around Democratic/liberal circles to eliminate the tax advantages of 401(k) and other retirement plans, via an interview with the author of one plan, Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York.