Our Obama Fantasy: He channels Reagan and Clinton, not Nixon and Carter
Andrew Redleaf and Richard Vigilante of Whitebox Advisors and authors of Panic call for cuts in capital gains, dividends and federal payroll taxes as well as a strong dollar policy.
Over the last two years so many pols and pundits have made Barack Obama the vessel of their fantasies it only seems fair that we take our turn. So here are three things we fantasize about him proposing in his State of the Union speech, not one of which stands a snowball’s chance, but anyone of which would cause a dramatic uptick in business confidence and the economic recovery.
- Make the Bush tax cuts permanent, especially the reduction in taxes on capital gains and dividends. Bill Clinton and Ronald Reagan may have disagreed about ordinary income tax rates (Reagan cut, Clinton raised) but about taxes on investment they were of one mind, which is why the Reagan-Clinton boom ran 25 years. Through most of the Nixon-Carter era the combination of inflation and high tax rates on investment kept the after-tax return on investment near or below zero. Turning that around (a process that actually started with Carter’s capital gains tax cuts) made business investment rather than consumer spending the driving force of economic growth for more than two decades.�
- Benefit to the economy (on a scale of 1-5): 5
- Likelihood Obama will propose it: 0 (They just can’t get past the ‘tax cuts for the rich’ thing.)
- Replace what’s left of the stimulus package and any future package with a suspension of federal payroll taxes for the balance of 2010. The best positive change of direction the Obama administration could make would be to give up this fetish for telling the economy how and where to grow and confine itself to creating the broad conditions for growth, again as Reagan and Clinton both did. A wise man once said that there is no end to the good one can do so long as you don’t worry about who gets the credit. Obama should give up on “creating” only jobs he can take credit for and be content to allow an unburdened economy to create millions of jobs about which he will never know. Plus this is just the kind of tax cut (certain to be pooh-poohed if not denounced by the Wall Street Journal) Democrats should be happy supporting
- Benefit to the economy: 5
- Likelihood Obama will propose it: 1 (Though the Democrat in Mr. Obama should like this, the narcissist will hate it. Guess who wins?)
- Having done his best to unleash growth, Mr. Obama should announce a return to the other half of the Reagan-Clinton consensus: a strong dollar. To the Keynesians, who reduce all economic policy to manipulating aggregate demand, low taxes and tight money are contradictory policies. But Reagan/Clinton understood that unleashing business investment to drive growth would not only allow for a strong dollar but actually require it. Maintaining the dollar’s value is essential to maintaining a positive real return on investment. A strong dollar would bring investment capital flowing into the U.S. And then there is the political plus: It was George Bush who allowed the dollar to collapse, so Obama’s speech writers could just hit their ‘it’s all Bush’s fault’ smart key.
- Benefit to the economy: 5
- Likelihood Obama will propose it: 2 (Dems in Congress are actually pushing Bernanke hard the other way, but as the health care denouement is proving, Obama really has no problem leaving his former congressional colleagues twisting slowly in wind.)
Tags: Andrew Redleaf, Barack Obama, Ben Bernanke, Bill Clinton, capital gains, dividends, economy, income tax, jobs, Richard Vigilante, Ronald Reagan, strong dollar, tax cuts, Whitebox Advisors
