Bye, Bye Tax Cut

[jjm]

Jelly - I think you and I agree. Greenspan and the Fed make great effort to appear that they are not influenced by politicians, but they are not above influencing politicians themselves. The latest example being what they just did to Dubaya, in my opinion.

 

[Shazam]

jjm: Greenspan would have to be an idiot to not support tax cuts, or at least maintain a neutral stance on them. WHY do you think he would be irrational and NOT support them? You can answer this question with NO political speculation - it MUST be based on fiscal policy.

Oh yeah. I never said he would support tax cuts. It just seems like he's now more open to the suggestion of tax cuts, which is sort of like an outside chance, not a given conclusion.

 

[jjm]

Shazam - He's not an idiot. The Fed and its cadre of economists have long held the view that debt reduction is better for the economy than tax reductions. They have noted that the resultant decline in interest rates would be far better for more segments of the economy than would be achieved through tax cuts.

I think Greenspan might support some targeted and small-scale tax cuts, but I do not think he would go to the lengths suggested by Dubaya. Unfortunately for those who want them, that probably aligns Greenspan's interests more with the Democrats than the Republicans on the tax issue. He would still oppose new spending initiatives from either side.

By the way, you did state he was flip-flopping in your post. All I pointed out was that the article to which you referred was an opinion offered by a pundit who thought Greenspan might change his mind at some point. That is a meaningful difference.

 

[jjm]

Looks like Jr's own party is already abandoning him...

The Washington Post. January 5, 2001, page A8: President-elect Bush said yesterday that short-term economic worries may cause him to speed up his tax cut. He is increasing his emphasis on cutting tax rates, pointing to worries about the economy as a justification for the cut. Republican lawmakers said that Bush can win bipartisan support for the more modest proposals to eliminate estate tax and reduce the penalty on married couples. '

See, I'm not making up this stuff!

 

[jjm]

I also doubt this will help Jr get his tax cuts through...

Parties reach deal on running split Senate

 

[charrison]

JJM,

Marriage penalty and estate tax are easy one to get passed. These both have broad support.
Expect these to happen early on.

Quite whining about tax cuts.

There is a simple way to solve this problem.

Add a checkbox on the 1040 that says "I do not need a tax cut, keep my hard earn money".

 

[FettsBabe]

Heck yea, who in the hell would check that box!!!! WOOHOO, Tax Cuts for AMERICAN'S!!!!!

 

[Russ]

<< russ, don't know what you have against ivory tower economists.

--elfenix, b.a. economics 2000 >>



ElFenix,

You're too young to have climbed in to the tower yet.

jjm,

I've been saying since August that we're in recession. Then, the response was &quot;the economy's great; it's booming; there's NO sign of a slowdown&quot;. Now the response is &quot;well, it is slowing; some numbers are weak; hasn't met the technical definition&quot;, blah, blah.

I've been in business for myself for over 11 years and, beyond that, I spend a lot of time talking with other business owners. I know what a recession looks, feels and smells like.

The duck has quacked.

Russ, NCNE

 

[JellyBaby]

<< Marriage penalty and estate tax are easy one to get passed. These both have broad support. >>

The idea of dropping the marriage tax and estate tax have broad support but the devil is in the detail. Ostensibly there's an R plan and a D plan. The Rs may try to stick to their 10 year estate tax elimination plan, which starts with the highest income/value brackets and gradually gives relief to the small estates near year 10. The Ds have been against that plan from the get-go.

<< I've been saying since August that we're in recession. >>

Russ,

Yep I remember you were the first to state it, before anyone else on the boards and before I heard anything on the boob tube. And my mutual fund, alas, sure felt pain this year. The fund made 30%+ in '95 and '96 but has TANKED this year to no gain whatsoever. Bad, Al, Bad! :disgust:

 

[ElFenix]

all the gdp growth graphs i've ever seen have a trend line, then when the graph dips below the trend line it is labeled as a recession. just my eco texts from a couple years ago, but it does make you wonder.

anywho... that statement about republican leaders saying there is broad support for elimination of the marriage tax penalty does not mean that republicans don't support bush's broad tax cut. they are not mutually exclusive ideas.

personally i'm against term limits but thats because congresspeople gain expertise in certain areas while they are there, so that they do know quite a bit of what they're discussing in subcommittee hearings. if we enforce term limits we'll have senators who think a microwave is an appliance that cooks food sitting on the telecomm subcommittee. well, maybe not that bad, i'm sure we can find some people with expertise in each area, but can we find the right amounts?

 

[jjm]

Russ - Incorrect. I said at that time that I thought we were not yet in a recession but that there was a chance of a slowdown, maybe even a recession, in mid 2001. My statements on this have been consistent throughout.

I do think the probability of recession is now higher, but it is still not a certainty. We were not in a recession last summer, and I contend that we still are not in one currently. I offered statistics to back up the assertion, and your defense in the past has been to state that statistics can't be trusted.

Fine; that's your opinion. But you have not cited evidence to support that position. I disagree with you, but I'm not arguing with you. I'm just supporting my point.

Since you seem to want credentials, I have been an investment officer in finance (not accounting) for 17 years, ran a small business for 10 years, have an MBA in Finance, and my wife has been running her business for more than 10 years. That does not make my experience better or worse than yours. It's just that you seem to like to tout your experience as de facto evidence that your position should be trusted. Using that standard, I offer my own background to suggest that my opinions can be equally valid as measured by your yardstick.

Why are you dwelling on the recession point when the topic I proposed is a discussion of the likelihood of tax cuts succeeding? What provisions do you realistically see passing and when? Would it be better for GWB to compromise now, or prolong a fight that I contend he can't win?

Not a flame, just a request for other views on the subject.

Charrison - I'm not whining about anything. And I am not calling anyone names or arguing. Rather than accuse me of that and making childish remarks about silly check-off boxes, explain how tax cuts will get done to the full extent proposed by Jr. I cited actual evidence and offered a plausible scenario that fits the circumstances. I welcome you cogent arguments that would refute my assertion.

I have seen folks in this thread state that they hope the tax cuts get done, but no one has even attempted to offer a case for a logical sequence of events that would lead to success. I have also seen here that folks seem to know little about the Fed's actual position on economic theory and little about the statements being made by politicians on both sides.

I am not flaming anyone, but I would suggest that a close examination of available evidence would lead one to conclude a scenario like mine is more likely than GWB getting the full extent of what he proposed. It is surprising to me that people still think he will succeed without having any knowledge of what the politicians are lining up to do.

Will my prediction be realized? I think so, but it is just a prediction, so alternative outcomes are possible. I just think Jr getting all he wants is very unlikely given the evidence currently available. Of course, if he has pictures of Gephart, that might change the equation!

 

[Ornery]

jjm, I'll put you on the spot and ask you a question or two that I'm sure you'll dodge. Do you want to see GW get his full tax cut? If not, why not? Last question. What would you consider to be a &quot;fair&quot; tax cut as far as &quot;the rich&quot; are concerned?

 

[jjm]

ElFenix - I think if you look at those graphs closely, you will see that recessions are labelled as such when the growth line falls below zero; in other words a contraction.

 

[jjm]

Ornery - Why would I dodge your question? I have answered the same questions before in these forums. I welcome the opportunity to do so again.

I do not want Jr to get the full extent of the cuts he has proposed. I agree with the Fed that faster retirement of debt would have a longer-lasting, broader positive impact on the economy.

I would like to see some tinkering of the estate tax to eliminate its hit on many of the smallest businesses; some adjustments to the so-called marriage penalty; higher contribution limits to IRAs and 401ks with indexing for inflation; elimination of the earnings level test for qualifying for retirement account contributions; reduction of the lowest bracket from 15% to 10%; increasing the 10% bracket range; no further changes in the capital gains rate; deductability of school tuition; and nothing greater than a 1% or 2% reduction in other bracket rates. All that should amount to about $500 to $700 billion. The rest should go to debt retirement.

Businesses borrow more to expand and hire more people when they have an expectation that interest rates will stay low. I know. I co-manage a $30 billion portfolio of debt to 1,500 small and medium-sized companies. Cutting the Federal debt sooner rather than later will keep rates low and sustain long-term confidence to invest and grow.

By the way, has anyone noticed that Jr has not proposed cutting business tax rates? He has proposed some special interest incentives (read loopholes), but no cut in rates.

Edit:

I'd also like to see elimination of the AMT. It's needlessly complex and I get hit by the damn thing every year!

Ornery - I assume you want the full package proposed by Bush. Other than the assertion of &quot;I deserve to keep my money,&quot; what is economic basis behind your position?

 

[Tominator]

<< The incredible deficits run up during the Raygun years are a case study. Spending increased and the rate of tax revenue growth fell far short of the Laffer expectation. >>



Quite obvious poster has NO IDEA what happened under Reagan.....Another Liberal rewriting history....man that gets old!


In just 2 years the revenue collected via taxes DOUBLED! This is what tax cuts do. Out of control spending by a Democrat controlled Congress gave us deficits.

Tax cuts are a reality! Not only will President Bush get his cuts, but more! Bank on it!

The Feds are in a panic btw...spelled desperate...

I just love how Greenspans policies are expanded to include today. Most of his speeches involving policy deal with immediate concerns and are in no way indicate tomorrows opinions....He is FOR tax cuts!

 

[Ornery]

OK, here's my prediction. If the Dems tax compromise involved paying down the debt with the balance of GW's reduced tax cut, the GOP would grab it. What is your prediction of THAT happening?

Since that ain't gonna happen, would you rather see GW's full cut or see the money SPENT? Hmmm?

 

[Michael]

I do not entirely agree with jjm (what a bond fund manager would want is sometimes off center with what the economy as a whole needs), but I agree with what he wants to see changed and the priority.

I did not like the huge growth in the stock market and the overheatedness of the economy as a whole over the past couple of years. Paying down debt over time (basically I want short term projects funded with current receipts and long term projects funded with long term debt) is the best strategy to ensure that growth continues.

I can easily see a recession coming in the next quarter or two. Many, many companies are cutting back on capex and discretionary spending. This will cause a ripple effect. I'm the Controller at a mid-sized company ($500 million) and have freinds in Finance positions in bunchs of industries all over the country. Capex is being cut and that will hit factories hard.

Michael

edit - I also hate the AMT and have skirted close to it a few times. I also agree with the worries that if taxes are not cut then the money will get spent instead of paying down debt.

I should make it clear againt hat the US is not a highly taxed country and the lower taxes is a competitive advantage.

 

[jjm]

Ornery - Last I looked, the Democrats were proposing that tax cuts be scaled back and that the money be used to pay down debt. Some Republican reps and senators have expressed agreement with that position. The Congressional Budget Office compared both the Bush and Gore plans and asserted that Gore's plan would pay off the debt at least 5 years faster.

On trading desks, bond traders were taking positions based on their expectations of the election. Traders who thought Gore would win bought Treasury bonds in the expectation that yields would drop and prices would rise. Then they would sell at a profit. Those who thought Jr would win were paring back long bond positions. Check with your brokers to find out what their firms' traders were doing.

Tominator - Ignoring your mean-spirited tone, care to provide a source for your assertion? I already stated that tax revenues initially increased, but then fell back to below-trend levels. If your assertion is correct, what led to record deficits during the Raygun years? Why didn't he veto all that big, bad spending?

Incidentally, I know many of you are pretty young, so you may not remember this, but during the '70s and early '80s it was Republicans who led the fight to reduce deficits and pay down debt. Perhaps the moral is that both parties will wed themselves to anything to get votes. Of course, that also means there is not a prayer for true bipartisanship.

 

[jjm]

Michael - Given your size company, I suppose you do bank debt and private placements. Public issuance is too expensive for you, right?

I manage privates. I know from long experience how painful high rates and tight credit are for companies like yours. And it's your size company and smaller ones that account for the bulk of the employment in this country.

Correct me if I'm wrong, but the expectation of reduced rates as a result of government borrowing less should make companies such as yours more confident in considering new expansion.

 

[Ornery]

&quot;Last I looked, the Democrats were proposing that tax cuts be scaled back and that the money be used to pay down debt.&quot; - Link?

Would you rather see GW's full cut or see the money SPENT?

 

[etech]

jjm, I saw your assertion earlier as to why you call Pres. Elect Bush Jr. Until you quit disregaurding plain facts(Gore is the Jr.) and making things up to suit your agenda, I see no reason to debate with you.

 

[Michael]

Nope, we're a public company and have &quot;public&quot; debt. It all depends on your definition of public issuance. I used to work for AlliedSignal and knew the Treasury people well enough to know about big bond issuances as well (I didn't work in Treasury but i knew a few people there pretty well). I meet with the CSFB banker that manages our relationships at least once a quarter. There is a main syndicate that bought our bonds, but they are occasionally publically traded. As we currently are in our quiet period, I cannot say more than passing observations right now.

I won't argue that lower rates make a difference. I work for a semiconductor related company, so we're tied to that cycle. When rate go up, the cost of capex goes up. I think the &quot;beer game&quot; explains our cycles a little better. Demand was good but not anywhere near as great at expected in Q3 and early Q4. Inventory got built up so production is being cut back.

Demand comes from consumers. Cutting taxes cuts withholding taxes and gives the people the money right away (some gets invested, some gets spent, some pays down consumer debt that gives banks more money to lend and the consumer more room to buy). Cutting interest rates can lead to more employment which means more money gets spent. It all has to be balanced with inflation. the world is also much more intertwined now and it is much more complicated than just one country's actions.

In general, I would prefer lower taxes so I can decide where to spend my money, not the governement. To quote my boss, &quot;I'm actually raising two families, one lives with me and one is somewhere else. I don't mind and they probably need the help, I would just like to meet them so I know where my money is going&quot;.

I also want the debt cut.

I think that Reagan did the right thing and I admire him. Clinton is flailing around right now trying to make Bush's life difficult, but many of his economic policies were Republican as the Congress and Senate were Republican controlled.

We need taxes because we need roads, police, defense, etc. and other services best provided by a social authority (government). I moved from Canada to here and still feel that I am in a tax holiday, even living in California (and I lived in NJ/worked in NYC for a while).

Michael

edit - I will add that bond traders and equity traders were stunned by Greenspan's latest moves and study after study have shown that the industry as a whole is poor at predicting the future. You have decent experience and I would listen carefully to your opinion (my background is accounting/auditing/operations, not capital markets). I also know you have a big chance of being wrong.

edit2 - W, not Jr., btw.

 

[Tominator]

<< care to provide a source for your assertion? >>



It is common knowledge. Try looking at unadulterated Government Figures and not some Liberal watered-down lies.

You keep referring the most respected President of the last 25 years as 'Raygun'. Your bias is showing. Even his enemies had respect for him.

Reagan came to several agreements with the Congress. Amoung those was a decrease in spending of 2 dollars for every 1 dollar increase. Democrats did not keep the agreement which helped push the mild recession at the beginning of Bush's Presidency.

Even JFK was for cutting taxes.

You asked why no cuts for business? The Democrats are much better at not telling the truth that Republicans could ever be. Democrat policy has NEVER been popular or legal in many cases. They have never given up. Bush has just decided to use this phlosiphy. Small cuts that no one can disagree with. Marriage Penalty, Death Tax...you get the idea. If business is not included then this shortcuts the cry of 'Tax Cuts For The Rich' bullcrap.

In our changeing economy it has been proven that it it is the consumer's willingness to spend that keeps our economy booming. More money to spend equals better economy. Keep it away from the dreadful abiss known as Government. If Bush can succeed here....the sky is the limit for his other policies.

Tax Cuts are inevitible...bank on it!

 

[jjm]

Tominator (and etech) - When did I try to hide my bias? I have stated it plainly before and show it consistently so that people know precisely from where I am coming.

Besides, why does anyone have to respect the person who is president? I respect the office, and I respect the achievements if there are any. But that doesn't mean I have to like or respect the man. I am sure neither of you respects Clinton as a person (and I don't either), but I do respect some of his accomplishments. I don't let my personal opinion of the man in office affect my judgment of his plans or performance. I don't think it serves any purpose to get emotionally wrapped up in any politician or political party.

No, I do not think Raygun was a great president on the economic side of the balance sheet. I also think he was a very poor manager. As a leader and a moral figurehead, I think he was pretty good. He also deserves much of (but not all) the credit for the implosion of the evil empire.

Tominator, you should read all my posts in this thread, especially the very first one. I asserted from the start that I think some limited and targeted tax cuts will get done. I do not think there is any chance that the large, across-the-board cuts proposed by Jr will happen. I contend there are too many forces lined up against them, and I listed many of them in this thread. Your response appears to show that you agree with that.

Michael - Thanks for the first well-thought-out response in support of broader tax cuts. But that still does not show a path for W achieving what he wants.

The &quot;I deserve it&quot; arguments were getting old. It made for a good sound bite in the campaign. And it's a great emotional issue. I am surprised how many well-educated people accepted it blindly without digging into the substance of the proposal. How many business or tech people would move forward with a business plan or complex instalation without an assessment of the potential costs/benefits? There are economic justifications offered by Dubaya's team, but I can't see that anyone who has responded here has really read them. I don't see any purpose in pointing them out if people are not interested in pursuing them.

As for your position, I think there is a more fundamental analysis at work. If a company makes widgets and wants to expand, it will analyze the potential rate of return from selling 100 more, 1000 more, etc. If the cost of capital is expected to remain low (due to the permanent positive impact of government debt reduction), businesses move forward with plans to produce 1000 more rather than just 100 more. The hurdle rate for a profitable return is lower so that consumer whims can be protected against.

OT: I think your firm probably did a 144A issue that is bought only by qualified institutions, right? Or, perhaps it was a syndicated bank loan. Either is not fully available to the public and avoids registration costs. They are quasi-public securities that skirt registration requirements by limiting their trading to only qualified institutions.

 

[chess9]

JJM:

If you aren't aware of this tip re the AMT let me give it to you. I got it from an IRS attorney.

It almost doesn't matter what you put on the form. Most IRS Auditors don't understand it. They will give it a pass. I was sent them twice in the '80s and called my lawyer friend at the IRS who gave me the above advice. My AMT result was only slightly higher than my return each time and was never questioned. I never had a clue how to fill the form out properly, but I always recognized a number I didn't like.