Capital Commerce
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Obama Will Tax More Than Just the 'Rich'
Continue reading… 8 CommentsLet's be clear: If Barack Obama is elected, everyone who has an investment will face higher taxes because Obama and an overwhelmingly Democratic Congress will raise the rate on capital gains. There is also a "hidden tax" that will come from the depressing effect on stock prices. (And does anyone think higher cap-gains rates are just what the housing market ordered?) But Stanford Group policy analyst Greg Valliere thinks income tax rates could be going up higher than expected and affect more than just the so-called rich (bold is mine):
If Obama wins, he probably will have tax legislation before Congress before the end of next winter. He will surely seek to abolish the Bush tax cuts for "the rich," loosely defined as those who make more than $250,000 per year. But with the budget deficit exploding, the definition of "rich" may be defined down to pay for Obama's spending priorities in areas such as health and the infrastructure. The top individual rate, now 36%, is scheduled to revert back to the old top rate of 39.6% at the end of 2010, but Obama probably would attempt to raise it more quickly. Some Democrats want to add a surcharge of 1 or 2 percentage points on top of 39.6% for individuals making more than $500,000. Taxing "the rich" is easy game for Democrats in this election cycle—since virtually all of these "rich" households are in reliably Democratic "blue" states in the Northeast or California.... Perhaps the biggest tax issue for the financial markets involves the capital gains and dividend rates.... If Obama wins, those rates are likely to wind up in the mid-20s, with an effective date that could come as early as some time next year.... With the Democrats determined to raise taxes (the Social Security payroll tax cap also would rise), there's a bit of good news: there's a strong consensus that the top corporate rate of 35% is too high; it probably will come down to 30 or 31%. And some middle class taxpayers may get relief on the Alternative Minimum Tax.
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Dude, Where's My Recession? The Series
Continue reading… 5 CommentsSo it looks as if the economy was a bit stronger in the first quarter than first estimated, up 1 percent rather than 0.9 percent. The details of the revision also make it more likely that 2Q will be safely positive. In short, the economy grew during the final quarter of last year, the first quarter of this year, and very likely during the current quarter. Lousy growth, absolutely. But no recession despite a housing meltdown, credit crunch, and oil superspike. This is why I call the U.S. economy the Amazing American Growth Machine.
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Obama's Big-Government Energy Policy
Continue reading… 9 CommentsCorrected on 6/26/08: An earlier version of this post incorrectly reported the size of the prize in John McCain's Clean Car Challenge. It is $300 million.
So Barack Obama doesn't think much of John McCain's $300 million Clean Car Challenge, treating it as if it's some new reality show on the Discovery Channel masquerading as energy policy:
When John F. Kennedy decided that we were going to put a man on the moon, he didn't put a bounty out for some rocket scientist to win—he put the full resources of the United States government behind the project and called on the ingenuity and innovation of the American people—not just in the private sector but also in the public sector.
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Congress Ready for Homeowner Bailout
Continue reading… 3 CommentsEventual passage of the $300 billion Dodd-Frank foreclosure bailout bill is as about as close to a cinch as you can find in Washington. Either Congress will come up with a compromise that the White House can live with, my sources tell me, or it will pass the bill over a Bush veto. All this by the end of summer, folks. The continued onslaught of negative housing news is only adding to the momentum. But as the econ team at First Trust Advisors points out, there is a silver lining in today's report on new-home sales:
Although there is more pain ahead in the housing sector, today's report on new-home sales shows the healing process is well underway. Although the pace of sales declined, the drop was in-line with expectations and above the March pace for the second month in a row. In other words, a bottom may be forming for sales. Meanwhile, total inventories are down 16.9% in the past year. More importantly, the number of unsold completed new homes—a key factor behind future construction and price changes—peaked in January at 199,000 and is now down to 182,000. The 17,000 decline in only four months is the fastest reduction in the past 20 years.
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Does the Weak Dollar Mock GDP Numbers?
Continue reading… 0 CommentsMy pal John Tamny over at RealClearMarkets has a must-read commentary on the dollar and the U.S. economy. He doesn't think much of gross domestic product numbers that show the U.S. economy is growing if at the same time the dollar is plunging:
GDP growth was high under Presidents Reagan (32%) and Clinton (31%), and just the same it's been mostly strong under President George W. Bush. Still, no one would mistake the booming Reagan (S&P 500 +121%) and Clinton (S&P 500 +208%) economies for the one we've experienced during Bush's (S&P 500 +2%) tenure. GDP measures the total market value of all goods and services produced, and with the dollar impressively weak this decade, it's unsurprising that this might show up in a positive way given the bogus nature of GDP calculations.
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John McCain's $300 Million Car Challenge
Continue reading… 9 CommentsSo John McCain is proposing a $300 million government prize to anyone who can develop a next-generation automobile battery that's way beyond current technology. Certainly the free-market part of my psyche thinks $100-plus-a-barrel oil should be all the motivation any car company needs to develop breakthrough battery technologies. Plus, there are already billions in venture capital dough going into clean-energy technology.
Yet I really like the idea of such innovation prizes, like the privately funded Ansari X Prize for space tourism. If government is going to get involved, this is the ideal way: Set the goal, set the prize (though maybe it should be like $1 billion), and then get out of the way, and let business and entrepreneurs innovate.
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Media to America: Disaster Seen as Catastrophe Looms
Continue reading… 25 Comments"I know you're just a reporter, but you used to be a person, right?" is a quote from the film Deep Impact and immediately came to mind after I read this article from the Associated Press. (It actually took two people to write it.) The "article" made me weep for my chosen profession. The absolutely disgraceful lead:
Is everything spinning out of control? Midwestern levees are bursting. Polar bears are adrift. Gas prices are skyrocketing. Home values are abysmal. Air fares, college tuition and health care border on unaffordable. Wars without end rage in Iraq, Afghanistan and against terrorism. Horatio Alger, twist in your grave. The can-do, bootstrap approach embedded in the American psyche is under assault. Eroding it is a dour powerlessness that is chipping away at the country's sturdy conviction that destiny can be commanded with sheer courage and perseverance.
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Raise Interest Rates, and Make OPEC Cry
Continue reading… 2 CommentsI recently had dinner in Los Angeles (Westwood, to be exact) with one of the smartest guys I know when it comes to the commodity markets. "What's the deal with oil?" I asked. His answer: Blame the subprime crisis. That prompted the Fed to slash interest rates. That killed the dollar. And that pushed investors into dollar substitutes like gold and oil. Boost the dollar, and bring down oil prices. Maybe not to $50 a barrel—but certainly to under $100.
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A Big Idea for McCain on Taxes
Continue reading… 0 CommentsRamesh Ponnuru writes thus in the Weekly Standard:
It may seem impossible for a tax reform to have all the qualities that [John] McCain should be looking for: one that simplifies the code, levies only two tax rates, and encourages growth, but also provides significant tax relief to the lower middle class and avoids widening the deficit. But there is a way out. A vastly expanded child tax credit, applicable against both income and payroll taxes, would reduce the tax burden quite a bit for lower-middle-class families. To promote growth, the reform could keep taxes on investment low while modestly reducing the top marginal tax rate. To take in as much money as the current tax code, meanwhile, this reformed, pro-family system would have to do two main things. First, it would eliminate or at least cap the deduction for state and local taxes. Second, its top rate, though lower than the current one, would apply to a lot more people.... In 1980, 1988, and 2000, Republicans won presidential elections in part by promising to tax a lot of middle-income voters significantly less than the Democrats would. If McCain wins this election without making such a promise, he will be the first Republican to do so in more than three decades. Or he can embrace a pro-family plan, and thereby go a long way to showing that he intends to reform our institutions to facilitate the pursuit of the American dream.
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Best of the Blogosphere: June 20, 2008
Continue reading… 10 Comments1) Daniel Drezner on free trade:
Yes, globalization is responsible for some job losses and wage compression, but its contribution is pretty damn small. Obama—or his advisors—are being disingenuous when he says that jobs have left Michigan for China. Those jobs have disappeared into the ether, period. Technological innovation has yielded so much in the way of productivity gains that even though manufacturing jobs are shrinking in the United States, manufacturing output in this country has more than doubled since 1980. The same process has caused the global number of manufacturing jobs to shrink as well.
2) Mark Perry of Carpe Diem explores the link between compensation and productivity.
3) Kurt Brouwer of Fundmastery has a great chart showing the relationship between education and income.
4) John Tamny of RealClearMarkets explodes myths about Americans and debt.
5) Russell Roberts of Café Hayek weighs in on income inequality.
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Source: McCain Vice President Search Now Focuses on Pawlenty
Continue reading… 18 CommentsWe may be at the flavor-of-the week point in the vice presidential sweepstakes, but that flavor right now for Team McCain is the environment-loving, hockey-playing governor of Minnesota, Tim Pawlenty. That tidbit is courtesy of a high-ranking McCain campaign official and reflects what I've been hearing of late among GOP activists. (John McCain is in the Twin Cities today for a town hall meeting and a fundraiser.)
Internal McCain polls show that adding Pawlenty, 47, to the ticket would help McCain win not only Minnesota but also the neighboring state of Wisconsin. Both are close swing states. In 2004, John Kerry beat President Bush by 3.48 percentage points in Minnesota and 0.38 percentage point in Wisconsin. In 2000, Al Gore beat Bush by 2.4 points in Minnesota and 0.22 in Wisconsin.
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Goldman Sachs: High Oil Won't Kill Stocks
Continue reading… 3 CommentsBoth the American and global economies have been amazingly resilient despite the surge in oil prices. And that is good news for stocks, according to investment firm Goldman Sachs:
Over the past few months, investor concern has shifted from the risk of a financial meltdown to the risk that the global economy will succumb to stagflation in the wake of soaring commodity prices.... However, our econometric estimates suggest that very little of the weakness in equities can be attributed to either lower earnings views in response to higher oil prices or higher real interest rates. Rather, the bulk of the negative correlation between oil and equities can be explained by the fact that risk aversion tends to increase when oil prices rise. This suggests that fading oil price increases by buying equities can generate profitable trading opportunities. More broadly, past oil spikes have tended to usher in bear markets for equities only when accompanied by a significant decline in economic growth and rising inflation. In the current environment, our baseline scenario sees global inflation peaking in the third quarter of this year, and for global growth to exceed its 25-year average in 2008 and 2009. While this does not mean that equities will necessarily rally from here, it does mean that higher oil prices are unlikely to trigger a deep sell-off in global stock markets.
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McCain's Phantom 100 Nukes
Continue reading… 1 CommentSo John McCain outlined his energy security plan Wednesday. He wants offshore drilling, $2 billion a year on clean coal technology (carbon capture and sequestration) research, and the building of 100 new nuclear reactors, 45 by 2030.
About the nukes: It is my understanding that such a plan would merely replace our 104 aging nuclear reactors and thus ultimately do nothing to diversify America's energy portfolio away from fossil fuels. Indeed, the McCain campaign's optimistic estimates of being able to cap carbon emissions without damaging the economy depend on a 150 percent increase in nuclear capacity, not merely replacing existing capacity as reactors age. Something doesn't add up here.
Also, please read this insightful take by Larry Kudlow (Maximum Friend of The Blog) on McCain's energy plan.
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Obama 2.0: Candidate Starts His Hard Move to the Center
Continue reading… 8 CommentsThis is going to drive the Daily Kos folks nuts. Barack Obama just gave a pretty meaty interview on economic policy to the Wall Street Journal in which he kind of sounded like a guy applying for a job at the Wall Street Journal, at least its editorial board. A few observations:
1) Obama certainly comes off as a Bill Clinton, Tony Blair, Democratic Leadership Council "Third Way" centrist. But here's the catch: On more liberal issues—higher taxes, more government spending, more regulation—he's been very specific throughout the campaign and has been talking about them since he started running. But now that he has the nomination, he seems to be moving to the right. First with the hiring of economist Jason Furman and now with this interview, where he talks about cutting corporate taxes, eliminating capital gains on start-up companies, and rebating money raised from selling carbon emission permits. Lots of buzz words but few details. Here he is on cutting corporate taxes, something he never mentioned in all those many debates with Hillary Clinton:
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McCain: Drill Here, Drill Now
Continue reading… 14 CommentsAgain, when Capital Commerce speaks, Washington listens. Just a day after I wrote about how John McCain would be smart to play down climate change and focus on energy security and increasing oil supplies through offshore drilling, he gives a speech doing just that. Unfortunately for him, Barack Obama stole a bit of his thunder by proposing to rebate some of the money raised from his cap-and-auction carbon plan back to consumers. Here's McCain:
The jobs, family budgets, and futures of the American people should not depend on the whims of foreign powers.... Oil and gasoline are the most vital of all commodities in a modern economy.... America's dependence on foreign oil is a matter of large and far-reaching consequences—none of them good.
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7 Ways McCain Can Use Energy to Beat Obama
Continue reading… 98 Comments"Climate change is never going to rise to the status of a top-tier political issue" is how one top climate-policy expert recently described the political lay of the land to me. Just take a look at the results of a recent NBC News/Wall Street Journal poll. The top issue for voters (27 percent) was job creation and economic growth. Right behind was the war in Iraq (24 percent). Then came energy and gas prices (18 percent). Far down the list were the environment and global warming, at a minuscule 4 percent. So despite all the media attention on global warming as an existential threat to humanity, it still scores a bit below illegal immigration in the hierarchy of voter concerns.
And there lies an opportunity for John McCain to turn the issues of energy and the environment to his advantage in his race against Barack Obama. Here are a few pieces of advice for Team McCain that I have gathered after talking to some political folks in recent days.
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Dude, Where's My Recession? The Series
Continue reading… 1 CommentI keep looking for allies to join my antirecession stance. (BTW, the Intrade betting market puts the odds of recession at just 28 percent.) I think I just found another one in Anatole Kaletsky, the economics columnist for the Times of London:
But is America really in recession? Experts seem to think so, including Alan Greenspan, Warren Buffett, George Soros and Martin Feldstein, the chairman of the National Bureau of Economic Research (NBER), the academic committee in Boston that determines business cycle dates. But where is the evidence for this belief? ... Looking at the statistics used by the NBER, there is little or none—at least so far. GDP has continued to grow, albeit slowly, in the past two quarters and almost certainly will accelerate in the current quarter because of booming exports; industrial production has been positive, as have real income and whole-retail trade. Employment has fallen slightly, but by nowhere near as much as in the mildest of past recessions. Reliable high-frequency indicators, such as the monthly purchasing managers' surveys, point to continuation of modest growth. Most importantly, consumer spending has remained robust.
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Obama Plans a Massive Hike in Social Security Taxes
Continue reading… 76 CommentsBarack Obama just found an extra $600 billion or so (over 10 years). He said today in Columbus, Ohio, that he wants to lift the income cap on Social Security taxes for folks making $250,000 a year or more. Here is a bit from his prepared speech:
Right now, the Social Security payroll tax is capped. That means most middle-class families pay this tax on every dime they make, while millionaires and billionaires are only paying it on a very small percentage of their income. That's why I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected. That way we can extend the promise of Social Security without shifting the burden onto seniors. And we should exempt anyone making under $250,000 from this increase so that the change doesn't burden middle-class Americans. This means that 97 percent of Americans will see absolutely no change in their taxes under my plan—97 percent.
Social Security guru Andrew Biggs over at the American Enterprise Institute has a run on a computer model a plan similar to Obama's. (Biggs extended the "donut hole" only to earners making up to $200,000.) Here is what he found (bold is mine):
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The Jason Furman Chronicles: Another Sign That Obama Is a Closet Centrist?
Continue reading… 5 CommentsThe liberal tizzy over Jason Furman, Barack Obama's new economic policy director, continues. Blogger Ezra Klein, a man known to have a soft spot for command-and-control economics, sees the appointment as more proof that President Obama will bring us Clintonomics 2.0 rather than Kucinichomics 1.0. (Trust me, that's the first time that term has ever been used in human history. I just Googled it. Nada.) Here's Klein, seemingly resigned to being disappointed in the putative Democratic nominee:
What I can't figure out about the furor of Barack Obama's decision to name Jason Furman his economic policy director is where have these people been? This is like getting pissed at Project Runway because it's a show about clothes. Austan Goolsbee, Obama's top economics adviser, is from the University of Chicago (business school, which is a bit different than economics department, but still!). When Michael Moore's Sicko came out, he wrote a review of it for Slate that argued against a single-payer solution in America. Obama's social and economic policy has been relentlessly center-left, focused on tax cuts and renewable energy credits. His health plan was the only one of the major three to not even attempt universality. This stuff is no surprise. Obama has many virtues, but his domestic policy has been consistently center-left. Those who're shocked simply haven't been paying attention.... The Left would be smart to convince Obama to add a persuasive, rigorous, labor economist like Jared Bernstein or Josh Bivens to his team, but they shouldn't fool themselves into thinking Obama has just made some staffing error here. Rather, he's been consistent in his economic policies and staff picks throughout the campaign, and there's every reason to think his actions reflect his underlying beliefs.
ME: Obama wants to raise taxes on investments, incomes, and corporations. Obama wants government to intervene as never before into the health insurance market. Obama wants to reorganize the U.S. economy around eliminating carbon emissions. Yet that's not enough for Klein? Hoo-boy.
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Dude, Where's My Recession?: The Series
Continue reading… 4 CommentsAs the saying goes, "Facts are stubborn things."
- Retail sales increased 1 percent in May. The consensus forecast was plus 0.5 percent.
- Retail sales excluding autos increased 1.2 percent. The consensus was 0.7 percent.
- Sales were also revised, up substantially for March and April.
So tell me, Brian Wesbury and Bob Stein over at First Trust Advisors, what's it all mean?
Today's report is the final nail in the coffin for the theory that the U.S. is in a consumer-led recession. Total retail sales are up at an 8% annual rate in the past three months while "core" retail sales are up at a 10.2% rate. It is impossible to be in a consumer-led recession when retail sales are growing so rapidly. Some analysts will attribute the strength in sales to the tax rebate checks that started being sent at the very end of April. However, sales were revised, up substantially for March and April, and core sales (excluding autos, building materials, and gas) in March and April were about as strong as in May, suggesting the rise in consumption is based on fundamentals, not government checks. Today's report creates considerable upside risk to our forecast of a 1.5% real GDP growth rate for the second quarter of 2008.
And to my pal Barry Ritholtz, with whom I have a recession bet, you can go ahead and purchase those BladeRunner disks now. No need to get express shipping, though.
