Capital Commerce
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$700 Billion for Wall Street, $700 Billion for Main Street?
Continue reading… 2 CommentsIn 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 ....
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Democrats and 401(k) Plans: Tax, Baby, Tax?
Continue reading… 23 Comments"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.
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Obama's Wonderful Disaster
Continue reading… 6 CommentsPortfolio'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!
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Democrats and Higher Energy Prices
Continue reading… 2 CommentsOne 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.
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Why Democrats Will Target the Investor Class in 2009
Continue reading… 152 CommentsThere 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.
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401(k) Foe Teresa Ghilarducci, the Most Dangerous Woman in America
Continue reading… 51 CommentsLISTEN NOW: Teresa Ghilarducci:
'The Most Dangerous Woman in America'Subscribe to Money & Business
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.
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What McCain's Polls Are Telling Him
Continue reading… 13 CommentsHere 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!
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McCain: Hey, Dems, Don't Tax 401(k) Plans
Continue reading… 12 CommentsLooks 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.
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The Economy and the Emerging McCain Comeback
Continue reading… 12 Comments"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).
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Juan Enriquez : 10 Proposals for the Next President
Continue reading… 2 CommentsAt 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...
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Warren Buffett for Treasury Secretary?
Continue reading… 4 CommentsI 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."
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Does $150,000 Make You Rich?
Continue reading… 7 CommentsNRO'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.
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Guess What, the Democrats Don't Need 60 Votes
Continue reading… 3 CommentsOne 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."
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Time to Nationalize the Stock Market, Too?
Continue reading… 4 Comments"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.
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Nationalization Nation: 401(k) Watch
Continue reading… 2 CommentsHere'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.
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A Sell Signal on the Pentagon
Continue reading… 0 CommentsIf Barack Obama is going to beef up our supposedly broken-down military if elected, then why is Wall Street suddenly down on the sector? Maybe it's because Barney Frank is talking about slashing the Pentagon's budget by 25 percent. (Efharisto to Max Boot at Commentary's blog.)
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America's Phony Lost Decade
Continue reading… 3 CommentsIs America headed for a "lost decade" of meager growth like Japan suffered during its banking and real estate meltdown in the 1990s? That's the big debate right now on Wall Street. Yet, in Washington, the common wisdom holds that America is already waist deep into a lost decade, one marked by stagnating wages, growing income inequality, and deteriorating economic fundamentals. That has been the liberal narrative of the Bush years, and now some conservatives have begun to buy into the critique. "Even before the Wall Street crisis, the American economy had underperformed from the point of view of the average worker," former Bush speechwriter and pundit David Frum wroterecently.
At best, this narrative is historical fiction. Take the bit about wage stagnation. Indeed, the real average hourly wage for workers, as calculated by the Labor Department, is just 1.2 percent more than it was at the end of 2000. Yet many economists, including those at the Federal Reserve, think the government is overestimating inflation by nearly a full percentage point. If true, then workers have actually seen wages rise by about 10 percent since 2000. And you don't even have to tweak the inflation data if you combine wages, salaries, and benefits, as does economic analyst Ed Yardeni. Doing that, he finds that workers are 11 percent to the better since January 2001.
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Obama: 'Theoretically' OK for Courts to Redistribute Wealth
Continue reading… 110 CommentsBack in 2001, Barack Obama gave an interview to a Chicago public radio station in which he talked about using the Supreme Court, the most undemocratic of the three branches of government (nonelected, lifetime terms), to "spread the wealth." Some rough excerpts:
If you look at the victories and failures of the civil rights movement and its litigation strategy in the court, I think where it succeeded was to invest formal rights in previously dispossessed peoples so that I would now have the right to vote, I would now be able to sit at a lunch counter and order, and as long as I could pay for it, I'd be OK. But the Supreme Court never ventured into the issues of redistribution of wealth and the more basic issues of political and economic justice in this society, and to that extent, as radical as, I think, people try to characterize the Warren court, it wasn't that radical; it didn't break free from the essential constraints that were placed by the Founding Fathers and the Constitution.... One of the, I think, tragedies of the civil rights movement was because the civil rights movement became so court focused, I think, there was a tendency to lose track of the political and community organizing activities on the ground that are able to put together the actual coalitions of power through which you bring about redistributive change, and in some ways, we still suffer from that. You can craft theoretical justification for it legally, and any three of us sitting here could come up with a rationale for bringing about economic change through the courts.
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Nationalizing 401(k) Plans: Down Argentine Way
Continue reading… 22 CommentsI posted yesterday about a loopy idea floating around Capitol Hill to shift people out of their 401(k) plans into a government plan. It would be like Social Security: the Sequel. It would also be a $100 billion-a-year tax increase that would hit people making as low as $75,000, according to the plan's author, a prof at the New School of Social Research. My guy Ed Morrissey over at Michelle Malkins's Hot Air site makes a great follow-up point:
I'd suggest that Pethokoukis vastly underestimates the effect this change will have on the stock market. The advent of private tax-deferred retirement accounts created a huge investor class in the U.S. By some estimations, more than 70% of American adults have money in the stock market in long-term investments for their eventual retirement. That's a revolutionary change in the relationship between labor and ownership, one that capitalism succeeded in creating where Marx and his followers only fantasized.
What happens when the tax deferral on this investment ends? Most people won't want to take the risks of the market without it, certainly not on the scale they do today (about $5 trillion in capital) and likely not after the Fannie Mae/Freddie Mac collapse. They'll start moving to savings accounts or gold and removing their money from the markets. The flight of capital will eliminate the necessary engine for recovery, but that's a minor point. The price of stock will utterly collapse as everyone looks to liquidate their holdings, crashing Wall Street and throwing tens of millions out of work as publicly-held companies disintegrate.
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Alan Greenspan's Day of Tears
Continue reading… 7 CommentsAt the new New York Times econ blog Economix, writer David Leonhardt writes this about Alan Greenspan's meaculpa on Capitol Hill:
Over the last 30 years or so years, the world has been deeply influenced by a laissez-faire economic philosophy, which has shifted the world toward an embrace of markets. And markets certainly do many things very well.... But it certainly seems as if this country, at least, went too far toward laissez-faire economics.
Me: Other than Wall Street, what other industries does Leonhardt want to reregulate? Communications? Transportation? Does he want tax rates back up to 70 percent and not indexed for inflation? Does he want to scrap NAFTA? I want to hear more!
