Truth Teller Will Win U.S. Presidential Election: John F. Wasik
Commentary by John F. Wasik
Nov. 3 (Bloomberg) — Who will tell Americans the truth?
The once-exuberant are now exhausted and the markets will not come to the rescue. Government will once again have to assume a role that it hasn’t had to take on since the 1930s.
Vital for the new president and Congress will be the need to restore the nest eggs of average Americans, who have lost as much as $2 trillion in retirement savings and about $4 trillion from their home values. At stake is the survival of the middle class.
The home is where the heart of this election lies. Who will shut down foreclosures? It needs to be a cold-turkey operation. Buying mortgages and preferred shares in banks won’t do it.
A new plan by the U.S. Treasury and Federal Deposit Insurance Corp. to commit at least $500 billion in government guarantees for troubled mortgages may help. It’s too soon to tell whether the Federal Reserve’s recent cut of its benchmark rate to 1 percent will have much effect in light of the economy’s shrinkage in the third quarter.
Without an immediate end to home repossessions, there will be no floor under prices. Home values fell at the fastest pace on record through August, followed by a 71 percent increase in foreclosure filings.
Home prices are down about 16 percent from a year earlier, according to the S&P/Case-Shiller home-price index of 20 major cities. While sales perked up almost 3 percent in September, the foreclosure crisis is far from over.
Obama Versus McCain
Yet tax-rate tinkering was trotted out once again in candidates’ platforms as if it had the power to restore home values or rebuild 401(k)-type plans.
They want to raise taxes on the wealthy and lower levies on the middle class — which is Barack Obama‘s approach — or leave George W. Bush‘s cuts alone for top earners to enjoy, an option favored by John McCain.
There’s a stark difference between the candidates when it comes to individual tax rates. Note: Neither candidate is talking about cutting often-onerous payroll taxes.
— Obama wants to enact a 2 percent surtax on those making more than $250,000, possibly adding a 2 percent payroll tax to bolster Social Security and Medicare. The Illinois senator also proposes numerous additional breaks for retirees, students, homeowners and new farmers.
— McCain would keep the top Bush-era rate at 35 percent for individuals and cut the corporate levy to 25 percent. While that will favor the richest Americans and corporations, it will cost the U.S. Treasury $7 trillion over the next decade, according to the non-partisan Tax Policy Center. Obama’s plan will cost about $2.6 trillion.
Referendum on Security
— For investors, McCain has a slight edge, favoring keeping the dividend tax rate at 15 percent, while Obama wants to raise it to 20 percent.
What’s clear is that this election is a referendum on whether “trickle-up” or “trickle-down” economics is the best path to offer financial security and creating jobs.
Then there’s the ugly truth of how tax giveaways have been created since before anyone can remember.
Will the new president and Congress shut the candy stores that tax laws have become for K Street influence merchants? The tax code can be simplified, but it will require slashing wasteful breaks that are often targeted to wealthy individuals and companies.
Anybody with a pile of cash and a potent lobbyist has bought a write-off or pork-barrel subsidy, creating a bountiful buffet for the well-heeled few. It’s neither fair nor simple.
Independent presidential candidate Ralph Nader has seeded the tax debate correctly by stating that the dialogue should start with “a principle that taxes should apply first to behavior we favor least.” He calls for higher levies on “the clearly addictive industries (alcohol and tobacco), pollution, speculation, gambling, extreme luxuries, instead of taxing work or instead of the 5 percent to 7 percent sales tax on food, furniture, clothing or books.”
While Nader doesn’t have a remote chance of getting elected, he is on to something useful. The tax code can be used as a cudgel to curb destructive behavior. It may also bring in revenue for health care, offset losses from small-business credits or pay to eliminate the hated alternative minimum tax.
Taxing vice is always low-hanging fruit. Corporate welfare, U.S. companies sending jobs overseas and defense spending also need a hard look.
Any future leader of the largest economy will surely need to take truth serum on this question: How do you give workers the chance to get ahead financially?
Households Fall Behind
When you subtract inflation, American household income fell 0.6 percent from 2000 through 2007, according to the U.S. Census Bureau. That’s the biggest fallback in a generation.
In three previous 10-year periods, income gains ranged from 4.5 percent (1969-79) to 8.3 percent (1989-2000). The Age of Froth is long over for most households. They are falling behind. More than 7.5 million U.S. households owe more on their mortgages than their properties are worth, and an additional 2 million could be underwater if home prices decline another 5 percent.
How will our new leaders vanquish the ogre of diminishing expectations? More than 40 million don’t have health insurance; pensions have evaporated; and everything from college to fixing your car costs more every year.
No matter who is elected, supreme honesty will be essential. More ingenuity, conviction and political will need to be harnessed than at any time since the New Deal days. Anything less than an all-out effort at reconciliation will be a raw deal.