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Sunday, October 29, 2006

Good Reading

If you wonder what may transpire in an Democratic controlled Congress, Opinion Journal has a wonderful piece in this weekends Hot Topic Column called "The Non-Contract With America What Democrats aren't saying about their agenda, so we will. "

A lot of people, the folks who I bitch about who aren't informed enough to understand, will ask "how does any of this affect me?", so I'll answer how a few of the issues they are talking about affect Mr. and Mrs. Joe Average.

Tax Rates, while Nancy & Co. are telling everyone the middle class tax cuts will stay, they don't tell you the effect of what they'd like to do to the "investor class" tax cuts of 2003. Those included capital gains and dividend tax cuts.

(From the article above).
Economist John Rutledge estimates that raising the dividend rate alone would reduce the value of the S&P 500 stocks by between 5% and 8.5%, roughly a $500 to $700 billion decline in the wealth of the 52% of American households that own stock.

Remember, that's just the dividend rate, capital gains would also come into play. How does it affect Mr. and Mrs. Averages? Easy, they probably have a 401(k), IRA, or maybe even a union penision fund. Unless you are an ultraconservative investor most of your retirement is probably wrapped up in the markets. Having them take a 5-8% hit is a hit in your future retirement income. I mentioned your union pension because when the market dove in 1999 and 2000 because of the tech stock meltdown many unions saw their pension funds dwindle, some being turned over to the feds.

The change to the dividend rules in the last few years have gotten a lot of companies to distribute dividends instead of hording cash. Changing the tax rates back will reverse that, and squelch the market. Think "tech bubble bursting", except for a longer term.

Paygo budgeting is another thing mentioned, but never explained by Democrats. The premise is for every new dollar spent, you have to either raise taxes by a dollar, or cut spending by a dollar. It sounds like a great deal, until you realize that 60% of the budget is wrapped up in 'entitlement programs' that paygo cuts don't apply to. That means when the fiscal 2008 budget congress works on comes up and Social Security rises by 3% that money has to be cut somewhere, or taxes raised to make it up. Think about the new spending your candidates have proposed on the stump, and ask yourself, where is the money coming from?

Health-care regulation. Yeah, everyone wants the Canadian system, except Canadians. John Dingle's idea of a 1.7% tax on you, and 7% on your employer sounds great. Except the employer has to come up with a way to cut costs by that 7% to pay for it.

And the truth is, it won't be enough money. Take a look at Europe, which went to VAT taxes, and were going to kill income taxes because of it, and fund universal health care. The VAT's have all gone up, income taxes went up, not away. And, to make up the cost to employers, employees got laid off. The average EU country has twice the tax burden and unemployment rate of the US, so if you work for a company of 100, find the 5 you least like and ask they be laid off to pay for the new tax.

The "negotiated drug prices" that Pelosi & Co. are touting are a farce if there ever was one. In the 1970's Europe developed 66% of all new drugs in the world. Then they decided that negotiated prices (actually, fixed prices) were the way to cut costs. Europe now develops less than 20% of new drugs, and most of their major pharmaceutical companies have either folded, or left for the US. When we try the same thing, watch the companies head to India and China, and wonder why.

Windfall Profits Taxes on Oil- Just say "HIGHER GAS PRICES". Anyone with more than two functioning synapses knows that taxes are a cost to a company, and costs are made up one of two ways, cutting other costs (employees, R&D, etc) or charging their customers more. Since the Dems are also hell bent on not allowing another well to be dug in the US, we might get a short reprive from higher prices since exploration costs for the companies will go down. But eventually that winfall profit tax will come out of your pocket.

The question is, how does Congress pass such a tax so it only affects oil companies? Their margins are lower than the average bank and service company, so saying anyone with over a 10% profit margin pays it (which the oil companies haven't had in years) would affect a lot of other businesses. By passing it with a dollar cap on profits you'd be likely to see a number of oil companies relocate out of the US, because it no longer pays to do business here.

Just a few things to think about with the elections a few weeks away.

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2Comments:

Blogger shoprat said...

The Democrats need to sit out a couple of elections and study the history of unintended consequences as they are carrying quite a load of them.

4:17 PM  
Blogger Crazy Politico said...

I think they prefer the "muddle through" strategy. They never seem to understand what is going to happen when they pass a law, and then muddling through to the next law to fix the problems created by the first one.

4:43 PM  

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