The Homa Files

Excerpted from US News & World Report, Why Democrats Will Target the Investor Class in 2009, James Pethokoukis, October 30, 2008

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There are at least two pretty effective ways to turn someone into a Republican: (1) get them married with kids and (2) get them to invest in the stock market.

That’s why (there) may well bring a concerted and all-out effort by the Obama administration and a Democratically dominated Congress to turn the generally pro-Republican Investor Class into an endangered class by, among other tactics, raising investment taxes and ending the tax preferences for 401(k)’s, IRAs, and other retirement accounts.

Here is the emerging battle plan for Operation Investor Class Rollback:

1) Hike Investment Taxes. Obama wants to raise capital gains taxes even though he has kinda, sorta admitted that it might be bad for the economy and might actually decrease tax revenue to the government. For now, he’s talking about raising the highest cap gains rate by one third to 20 percent, though earlier in the campaign, he floated pushing it as high as 28 percent, a near doubling. With the next administration facing a trillion dollar budget deficit—maybe more—there will certainly be pressure to raise taxes to higher levels than now being suggested.

2) Eliminate 401(k)’s, IRAs, and other retirement plans. Democrats in the House are now talking openly about the longtime liberal dream of repealing the tax advantages of putting money into a 401(k) plan or other tax-advantaged retirement account.  In place of 401(k) plans, they would have workers transfer their dough into government-created “guaranteed retirement accounts” with a 3 percent real return.

Not only would removing the preferential tax treatment of these vehicles raise investment taxes by $100 billion a year and affect Americans making less than $100,000, it would surely prompt many Americans, already shell-shocked by the market’s recent losses, to flee stocks. All this ignores the fact that there are trillions of dollars in American retirement accounts, and abandoning the higher-returning stock market at a probable bottom is classic financial foolishness.

3) Replace private capital with public capital. But wouldn’t a weak stock market hurt the economy by making it tougher to raise investment capital and lessen the return on risk? Surely, it would. But Obama is planning hundreds of billions of dollars of government “investment” in cutting-edge technology, particularly in the energy and healthcare sectors.  Now, the private VC industry is already pouring billions into alternative energy, but Obama thinks that’s not enough and wants Uncle Sam to get in on the action at taxpayer expense.

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Bottom line: All this makes smart political sense for Democrats. See, since the mid-1960s, stock ownership in the United States has risen from 10 percent of households to around 50 percent. And that growing Investor Class, a term coined and popularized by CNBC commentator and host Lawrence Kudlow, has helped nudge America evermore to the right.

But now if the Democrats control both the White House and Capitol Hill, look for them to move hard in the other direction, from an Ownership Society to a Government Owns It Society that would perhaps nudge America back to the left.

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Full article:
http://www.usnews.com/blogs/capital-commerce/2008/10/30/why-democrats-will-target-the-investor-class-in-2009.html?s_cid=rss:capital-commerce:why-democrats-will-target-the-investor-class-in-2009

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This entry was posted on October 31, 2008 at 8:00 am and is filed under Economics, Government & Politics, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.