Capital Commerce
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Giuliani Tax Plan Is a Supply-Side Dream
Continue reading… 0 CommentsRudy Giuliani's presidential campaign has been relatively light on new ideas and specifics, at least on the domestic policy side. Well, now he has a mondo tax plan. Here is how the Club for Growth describes it (for the life of me, I could not find it on Giuliani's website):
The Giuliani tax cut plan would extend the 2001 and 2003 tax cuts immediately; eliminate the Death Tax completely; lower the capital gains and dividends tax rate to 10% and index capital gains to inflation; lower the corporate tax rate from 35% to 25%; and permanently index the Alternative Minimum Tax to inflation with a plan for eventual elimination. The Giuliani tax cut plan also contains a particularly bold pro-growth tax simplification strategy that would give taxpayers the option of opting into a simple tax plan in which their taxes could be done on one page. Instead of the current tax behemoth, the voluntary tax plan would constitute across the board cuts in marginal tax rates by proposing three simple rates of 10%, 15%, and 30%.
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Therapy From Doctor Kudlow
Continue reading… 0 CommentsLarry Kudlow blogs that he isn't ready to give up on the Bush boom just yet: “Despite Friday’s soft jobs number, I do not believe we are heading into a recession. Any slowdown in the U.S. will be very short-lived. I’m sticking with Goldilocks 2.0.”
The host of the highly rated CNBC show Kudlow & Co.—and CapCom’s maximum FOB (Friend of the Blog)—also had a provocative recent post on John McCain, who just got an endorsement from supply-side economics icon Jack Kemp, and economic policy:
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Quick Hits for Jan. 9, 2008
Continue reading… 2 Comments1) Chris Edwards of the Cato Institute doesn’t think much of the calls for fiscal stimulus: “What Bush and Congress should consider are long-term, permanent changes to the tax code to make the economy more productive, such as a corporate tax rate cut or more favorable treatment for capital investment. If that helps in the short term, that’s good, but spurring long-term growth in the economy is far more important than worrying about temporary ups and downs.”
2) Economist blogger Arnold Kling points out that Mike Huckabee’s Fair Tax idea could mean a huge tax increase on the middle class:
Our current tax system takes its biggest bite out of people who earn much more than they consume. Because the Fair Tax (or any consumption tax) would abstain from tapping this rich vein of unspent earned income, it would take larger bites out of others to obtain the same revenue. Consumption taxes reduce tax rates drastically on people who earn more than they consume. To be revenue neutral, they have to increase taxes drastically on people who consume more of what they earn.
3) More evidence—via the Treasury Department—that high corporate taxes are leading to lower middle-class wages and higher income inequality. University of Michigan economics Prof. Mark Perry of the Carpe Diem blog offers this conclusion:
Corporations don't pay taxes, individuals pay taxes in their roles as shareholders, workers, and consumers. Higher corporate taxes translate to lower dividends for shareholders, lower wages for workers and/or higher prices for consumers. According to the empirical evidence presented in this paper, it appears that a substantial burden of increases in corporate taxes fall on the workers employed by corporations. Higher corporate taxes=lower wages.
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Struggling Romney Needs an 'Oprah Moment' to Win
Continue reading… 15 CommentsImagine if John McCain had narrowly lost to Mitt Romney in New Hampshire last night, and, when you down broke down the results, it was clear that the voters most concerned about the war in Iraq and terrorism went heavily for Romney—plus thought he would make a better commander in chief. That would kind of kill McCain's whole rationale for running, don'tcha think?
Well, that is pretty much what did happen, except in reverse. Voters who were most concerned about the economy went strongly—41 to 21 percent—for McCain over Romney, the multimillionaire venture capitalist. The Wall Street legend. The guy with the M.B.A. The guy who turned around the Salt Lake City Olympics. The guy who says, "I know how the economy works." Even worse, Romney lost to a fellow who has admitted in the past that economic policy is not his strong suit and that he might need more of an expert as his veep if nominated.
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Democrats May Push $100 Billion Boost to Economy
Continue reading… 2 CommentsWhile Wall Street debates whether the economy will sink into recession and how serious any downturn might be, Washington is already planning to take action. Capitol Hill sources tell me that House Democrats, led by Speaker Nancy Pelosi, will probably offer up a $100 billion package of tax cuts and spending increases to juice the economy.
President Bush may offer his own short-term package at his State of the Union address later this month, as well as push for extension of the 2001 and 2003 tax cuts and a lowering of the corporate tax rate. Among the possible stimulus options are tax rebates for middle- and lower-income Americans, a payroll-tax holiday, accelerating the depreciation or expensing of new equipment by business, and federal aid to states.
Here is a previous post on the efficacy on such Washington pump priming.
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After Iowa: 8 Quick Thoughts on the 2008 Race
Continue reading… 6 Comments1) I have feeling we are going to start hearing a lot more from Hillary Clinton about Barack Obama's "trillion dollar" increase—as she described it in a debate—in Social Security taxes.
2) Today's lousy jobs numbers will increase the likelihood that economic growth will be a huge 2008 issue. (As Global Insight put it: "The real shocker in today's report was the sharp jump in the unemployment rate to 5.0% from 4.7%. We haven't seen a [0.3 percentage point] jump in the unemployment rate since the 2001 recession.") The issue will be not how to slice the economic pie but how to grow the economic pie. Fiscal stimulus packages will abound. Let the tax-cut bidding war begin! What's more, the jobs numbers plus Mike Huckabee's stunning populist win will make the rest of the GOP field realize that a "Morning in America" campaign (or as Sam Brownback put it: "America rocks!") is not going to work, nor is blaming the media for all the pessimism out there.
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Is Huckabee a Southern-Fried Buchanan?
Continue reading… 1 CommentTonight's Iowa caucuses might give a hint as to whether populism has any oomph as a 2008 campaign issue—at least the Wall Street Journal thinks so:
In the frantic closing days, as candidates have touted their résumés and needled their opponents, two leading contenders from each party—Democrat John Edwards and Republican Mike Huckabee—have ramped up their anticorporate, anti-Wall Street rhetoric.
Mr. Huckabee's campaign represents a new challenge to the historically business-friendly Republican Party, and so far none of his rivals have picked up his rhetoric. But Mr. Edwards is tapping into a long tradition of Democrats' receptivity to working-class appeals, and his main competitors are scrambling to echo the populism as economic anxiety has intensified among voters.
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Iowa Caucus: Betting Markets Predict Obama, Huckabee
Continue reading… 2 CommentsAs of midmorning, the Real Clear Predicts Market, an online betting market, gives Mike Huckabee a 64 percent chance of winning Iowa vs. 38 percent for Mitt Romney. On the Democratic side, it's Barack Obama at 62 percent, Hillary Clinton at 35 percent, and John Edwards at 20 percent. Also of note, the current odds on who will win the GOP nomination are John McCain at 27 percent, Rudy Giuliani at 25 percent, and Romney at 24 percent. This is the first time I have seen McCain in the lead since spring of last year.
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Hillary Follows the Same Election Track as Rudy
Continue reading… 0 CommentsJust checked the Intrade online betting market. Traders have Mike Huckabee winning Iowa, John McCain winning New Hampshire and South Carolina, and Rudy Giuliani taking Florida. Many pros, of course, doubt whether Giuliani's Sunshine State lead can actually survive a string of early losses.
Interestingly, Hillary Clinton may be forced into the same gambit if she is to grab the nomination: losing early and winning late. Right now, traders have Barack Obama winning Iowa, New Hampshire, and South Carolina before Clinton wins Florida. Again, those Florida odds for both Giuliani and Clinton are likely to drop if predictions of early losses come true.
Yet overall, traders still give Clinton a roughly 65 percent chance of being the Dem nominee while among Republicans it's a more-or-less three-way tie between Giuliani, McCain, and Romney. McCain has inched by Romney only in the past couple of days.
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Does Washington Pump-Priming Work?
Continue reading… 0 CommentsFormer Clinton Treasury Secretary Larry Summers, as well as some Democrats, have advocated temporary tax cuts or rebates to boost consumer spending to help avoid a recession this year. Milton Friedman's "permanent income" hypothesis argues that such moves don't provide much bang for the buck. Friedman theorized that people take long-term views of their financial situation and won't spend one-time bonanzas.
Well, a new study from the Federal Reserve Bank of Chicago, the University of Nevada-Reno, and the Wharton business school looked at what consumers did with the 2001 federal income tax rebates. Specifically, to what extent did consumers use the $38 billion in rebates—typically $600 for couples and $300 for singles, for an average gain of about $500 per household—to increase spending or pay down debt? The study found the following:
On average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt and increasing their liquidity. But soon afterwards their spending increased.... For consumers whose most intensively used credit card account is in the sample, spending on that account rose by over $200 cumulatively over the nine months after rebate receipt, which represents over 40 percent of the average household rebate. [The results] represent compelling evidence of a causal link from the rebate to spending.
Well, kind of. Basically, the study found that some consumers spent 40 percent of the rebate; most spent less, if any. If anything, the study hints that the 2001 tax cuts and the 2003 should have been done in reverse order given the way the economy boomed after 2003 and lurched forward after 2001. More important, what would be the impact today of temporary fiscal stimulus—whether in the form of tax cuts, rebates, or more government spending—vs. long-term policies that would improve the productive potential of the economy and its fiscal outlook? Sure the latter is harder, but that's what Washington is supposed to be doing, yes?
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A 2008 Consumer Recession Is Unlikely
Continue reading… 0 CommentsEconomist Jim Glassman of JPMorgan Chase puts the kibosh on a housing-led recession in a new piece of analysis. Here are some of the juicy bits:
Sometimes homeowners are portrayed as living on the equity in their homes, treating the equity in their houses as an ATM.
1) This characterization confuses the typical, and rational, response by consumers to changes in their wealth, realized or unrealized. Equity extraction is merely one way consumers can adjust their spending to wealth gains. They can also choose to save less (spend more).
2) Many homeowners may view the building of capital gains in their homes as a down payment on a future purchase. If so, they could view a decline in the value of their homes to be a wash, if prices in other areas they would choose to live fall too. In that case, a decline in house prices would not lead to a reduction in consumer spending.
3) Income fundamentals trump everything for consumers. At the end of the day, the shape of consumer trends will be shaped by trends in real disposable personal income. ...Wage and salary gains have been steady and solid in recent years, since 2003, when the economy's recovery took hold. For example, real wages and salaries have been growing almost 3 percent annually for four consecutive years, as the economy has been recovering from the slump early in the decade.
4) Consumers are likely to face a challenging year in 2008. Nonetheless, real consumer spending is forecast to only moderate to 2 percent pace over the four quarters of 2008, down from 2.6 percent in 2007. This would represent the slowest year for consumers since 2002, but likely would not trigger a recession.
