Why Bush Is Worth $4.6 Trillion to the Economy

If Kerry is elected, stocks should drop by 6%, or $1.2 trillion, since the yield on securities drops from 85% to 80%, other factors remaining equal.

If Bush is elected, stocks rise by 17%, or $3.4 trillion, since yield increases to 100% from 85%. Difference between candidates is $4.6 trillion.

However, to compensate for the lost $100-150 billion per year in tax revenues, Bush's plan should include a one-time capital gains tax on all capital appreciation prior to the 0% rate date. This $1 trillion in revenues could be paid over 4 years, wiping out the annual deficit. It opens the door for Ownership Plans and the Flat Tax.

This is not about party politics, it is about how the capital gains rate effects the total value of the equity market. If Kerry was for 0% capital gains and Bush for 20%, my support would be for Kerry on this issue.

Didn't Wharton teach you that the Stock Market and the Economy aren't the same thing?

Well, here are the facts:

Gross Domestic Product (GDP), the measure of the USA's output of goods and services, is calculated by the Commerce Department's Bureau of Economic Analysis using the following items:

Personal consumption expenditures: Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65-70% of gross domestic product.
Gross private domestic investment: Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12-18% of gross domestic product.
NET EXPORTS OF GOODS AND SERVICES Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports (Trade Surplus) and negative when exports are less than imports (Trade Deficit). In recent years, net exports of goods and services have been negative.
Government consumption expenditures and gross investment measures government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20% of gross domestic product. This percentage tends to be ebb and flow a little with the political winds.

It doesn't say anything about the equity market, does it?

Willie Green
America First! Buchananite
Penn State MBA ('76)

BTW, Welcome to FreeRepublic.
And I have no intention of voting for either Bush OR Kerry.
IMHO, they're BOTH economically irresponsible boobs.

The wealth of the economy (or its balance sheet, if you will) is my focus, and increasing national wealth by changing the tax code is my objective.

WEALTH: The net ownership of material possessions and productive resources. In other words, the difference between physical and financial assets that you own and the liabilities that you owe. Wealth includes all of the tangible consumer stuff that you possess, like cars, houses, clothes, jewelry, etc.; any financial assets, like stocks, bonds, bank accounts, that you lay claim to; and your ownership of resources, including labor, capital, and natural resources. Of course, you must deduct any debts you owe.
VALUE ADDED: The increase in the value of a good at each stage of the production process. The value that's being increased is specifically the ability of a good to satisfy wants and needs either directly as a consumption good or indirectly as a capital good. A good that provides greater satisfaction has greater value. In essence, the whole purpose of production is to transform raw materials and natural resources that have relatively little value into goods and services that have greater value.
SERVICE: An activity that provides direct satisfaction of wants and needs without the production of a tangible product or good. Examples include information, entertainment, and education. This term good should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.

Wealth is created only by engaging in value-added activities. By the same token, Service sector activities do not create wealth, they merely transfer, redistribute and eventually dissipate wealth as consumption. Thus, as value-added activities move offshore and the U.S. labor force shifts to the Service Sector, wealth is dissipated, not created. And the U.S. standard of living declines as a result.

A shift in national tax policy would certainly help reverse this trend (A Proposal to Abolish the Corporate Income Tax). Such a shift would redirect business investment into developing our own domestic value-added industries rather than fleeing to offshore locations. And the monies spent by American consumers would "trickle down", stimulating the economic "ripple effect" throughout our domestic economy rather than hemorrhaging offshore as a ballooning trade deficit.

This approach truly will create wealth and economic expansion, not the current, faux "expansion" (a bubble) that is being fueled by debt.

Willie: Thanks for all the info, read most, agree with some, disagree with others. Is this rookie hazing?

Back to my point: Wealth can be described by listing assets, however, those assets can only be valued by markets, stock markets being an obvious example. Stock markets are driven by yield. If you change the capital gains rate, you change yield and hence the price of the stock. For example, what would the price of a stock be if the capital gains and dividend tax rates were 100%? (Assume that (1) The 100% rate will never change and (2) the owner of stock cannot control the company.) The obvious answer is that with no possibility of gain, the value would be zero. On a micro level, if you change the cap gains rate to 0%, you maximize both yield and price for the individual investor, whose "wealth" increases. (By the way, 0% corporate taxes [your paper] would have a compounded effect on price for those companies currently paying taxes.) The 17% increase in yield and stock market prices would have a very real secondary impact on the GDP.

Is this rookie hazing?

LOL! Yes, I suppose it is, in a way.
As you might imagine, there is quite a bit of partisan distortion of economic, financial and taxation theories expressed on these threads. In my own way, I attempt to set partisan politics aside, and come up with my own vision of what is "fair" for all Americans. (An impossible task which subjects me to mudslinging from all conceivable ideological directions.)

Anyway, it is this analytical sense of "fairness" that leads me to prefer a Flat Rate personal income tax rather than a graduated rate that could be either "progressive" or "regressive".

Similarly, when discussing tariffs, I prefer a single, uniform, flat-rate "revenue tariff" applied to ALL imported goods. No exemptions for special interests disiring preferential treatment for specific commodities, goods or nations. But also no punitively high "targetted" or protectionist tariffs favoring other special interests. (Those don't work anyway, and often produce distortive results that are opposite to what was intended.)

The First Federal Revenue Law
On April 8, James Madison, once again a congressman from Virginia, addressed the House. He went right to the point. Congress, he said, must "remedy the evil" of "the deficiency in our Treasury." He argued that "[a] national revenue must be obtained," but not in a way "oppressive to our constituents." He then proposed that the House adopt legislation, virtually identical to the unimplemented Confederation tariff, imposing a five-percent tariff on all imports....
...A single, uniform tariff, he insisted, had two advantages. First, it could be imposed quickly, which was important because "the prospect of our harvest from the Spring importations is daily vanishing." Second, it was consistent with the principles of free trade ("commercial shackles," he said, "are generally unjust, oppressive, and impolitic")

Anyway, with that background, let's get back to the capital gains tax and your stock market example.

It goes without saying that any kind of tax cut is going to provide SOME kind of economic stimulus in the private sector. Whether that stimulus is sufficiently beneficial to the economy to offset the loss to the Treasury is a different matter. If not, it shifts the burden of taxation to "somebody else".

My major objection, therefor, to elimination of the capital gains tax is that it would set-up a preferred class of citizenry who would be exempt from their legitimate obligation to support the operation of our federal government. I don't subscribe to the worn-out partisan claim that stockholding investors already contribute more than their fair share by employing other people. Stockholding investors have already received the privilege of limited personal liability for providing that socio-economic benefit.

No, those opportunists who acquire personal economic gain through accumulation of short-term stock-trading profits should be taxed just like everybody else. For them, short-term capital gains ARE ordinary income, and it is right to tax them as such.

Long term capital gains are a different story. Especially as they reward the interests of long-term investors engaged in constructive competitive improvement of the business enterprises they have invested in. (I have no love for "corporate raiders" who have intentionally damaged many fine businesses for their own personal gain.)

It goes against my previously stated preference for uniform, no-exceptions, tax rates. But I AM open to proposals regarding the long-term capital gains tax, expecially since this more often affects investors in other properties besides the stock market. We already provide a reduced tax rate for long term holdings (although I'm not really certain that I'd call 1-year "long term") But I could favor abolishing the capital gains tax on investments that have been held for longer periods of perhaps 5~8 years. This would certainly reward those dedicated investors who have truly made the longer term commitment to the successful operation of a viable business operation.

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