Thursday, October 04, 2007


Please tell me what you think. A few days ago, I wrote about carbon tax bills that are floating through Congress. I stated my opinion that Bush and Congress will meet in the middle to fix the Alternative Minimum Tax and help the environment at the same time. On a scale from 1 to 10, please let me know what you think. If you think a deal is certain, one that will result in higher taxes on fossil fuels, largely offset by tax reductions elsewhere, please send me a 10. If you think such a deal in the 2007 Congress is impossible send me a big zero. If your best guess is somewhere in between please respond accordingly. I will send the results of this "poll" only to those who respond.

Perhaps I am out in left field with my back to the wall, this might turn out to be an easy out or a home run! I have not read or heard of others making my argument.

One school of thought by strategists on both sides of the isle is that Democrats will wait until after the elections to make their big push for higher taxes. It does not seem to me that they have been all that shy so far. Also, there are lots of "goodies" in store for those who are willing to compromise now. The $495 BILLION defense appropriations bill that was just sent to conference, includes funding for all kinds of pet MULTI-BILLION DOLLAR military projects plus an extra $4 BILLION to police our Mexican Border. THREE BILLION of the FOUR is designated for the building of a 700 mile long fence. If this fence is ever built, it will do little to solve the problem and it will cost much more than THREE BILLION DOLLARS. One reason the cost will be much higher is cities along the border will fight it. The land for the fence will have to be taken through court proceedings. The government has the right of imminent domain but there will be costly battles fought. Besides, even if the fence is built it will not help solve the problem. Building such a fence is a great example of cutting off ones nose to spite ones face. To add insult to injury it is estimated that 4 or 5 red states will swing to blue if these misguided soles do not back off with the hate speech that surrounds the issue. Oh yes, the hate speech is disguised but the Hispanics can feel it in the air. The $495 BILLION DEFENSE BILL, which includes funding for lots of jobs in lots of congressional districts will not be sent to the President all by itself. The members who want the "goodies therein" will have to vote for a few bitter pills. Bush will ultimately accept a number of bitter pills to get a lot of other "stuff" passed.


The online betting services put the odds at 60% that the Democrats will sweep the House, Senate and Presidency in the 2008 elections. It could happen but the race for the Presidency has historically been a very close race. Neither Bill Clinton nor George Bush ever won the majority of votes. If Giuliani is the Republican nominee, conservatives threaten to back a third party candidate, throwing the race to the Democrats. Hillary is the odds on favorite to be the Democrat nominee; the right wing will ultimately go all out for the Republican nominee in order to defeat Hillary. Of course, Romney expects the right wing to fall in behind a Mormon if he is the nominee. It might be a close call as to what conservatives hate the most, abortions or Mormons! Yes, I know, it is not right to lump all Democrats or all Conservatives into one category but it sure can be fun.

It appears to me that Hillary has the nomination wrapped up. However, while Giuliani is well ahead in the national polls, Romney is leading the way in the early states. Romney has a nice lead in NH, IA, NV and MI. Giuliani is well ahead in SC and FL. Romney has wisely spent his money advertising in the early states. Giuliani has built on his national polling lead. My guess is that Giuliani wins but anything can happen.

Despite what the news media portrays, there is a large group of voters that believe the nations security is the most important issue. Most of these folk believe the Iraqi war will save American lives in the long run, many others do not believe but they want to believe. Based on recent success, in particular the recruitment of tens of thousands of Sunni's to the government side of the battle, the war could actually be a net plus for the Republican party by election time. Giuliani gains the most from improvements in Iraq because he is seen as the tough candidate who has worked at helping keep Americans safe from terrorism.

Another reason that conservatives will ultimately fall in line behind the Republican nominee is because they have fought a very long fight to "win" the Supreme Court and they will not throw this victory away lightly. Giuliani believes in reducing abortions as much as possible while leaving women with the right to choose. I profess to be a Christian Conservative but I am also a pragmatic libertarian economist. It is truth that most juries would not send a woman to jail for committing an abortion and it is wrong to pass laws that you are not willing to enforce. Abortions and drunkenness should both be discouraged but our experience has shown that the "cure of prohibition" is much worse than the disease.

The question posed comes down to the attitude of Congress. Will the conservatives hold-on to the immigration issue, which is a big winner for them in a number of congressional districts but which could easily cost them the Presidency and the Supreme Court? Are the Democrats so confident of a sweep that they will play "rope-a-dope" for the rest of the Bush term? Will incumbents risk alienating the public by continuing to be a "do nothing congress"?

Keep in mind that Democrats would likely pay a huge price if they were to fail to pass the 12 appropriations bills and the budget. The big game is between the Democrats and Bush. As we have all learned, divided government is almost always best. With Democrats in control of both houses of Congress, the Republican nominee has a much better shot than is currently commonly perceived. If you want to make a little money, sell the 60% contract at Trade Sports. In just a few months the public will begin to realize that the odds of a Democratic president are not much better than 50%.

The tougher bet is in regard to the new tax structure. Based on the real estate cycle, it is time for major income tax over haul. The real estate cycle has lasted an average of 18.3 years for centuries but this one has been one of the longer ones. The last three major peaks in residential sales momentum were in 1968, 1985 and 2005. The Reagan tax simplification was passed with an effective date of sometime near August 14, 1986, as best as I can recall. So, we have had 20 years between the last two peaks of the market but we are in the 21st year since the tax reform. I mention the prior cycle because the tax reform in that cycle was parceled out in small increments year after year with the biggest reforms not too long before the great recession of 1973-74. Several of the current bills being floated are clearly "anti real estate bills". One would eliminated many of the tax advantages of second home ownership and another would reduce the interest deduction for homes larger than a certain size.

Bush hopes any compromise will include making his reductions to the capital gains taxes permanent. The Democrats will go along only if rich pay more. Right now, the top 50% of tax payers pay better than 95% of all the income taxes paid. Because the current contest is for the nomination, the Presidential contenders are making a bigger deal out of soaking the rich than what they would actually try to accomplish once in office. So again, the deal that congress can make now might even be much better than the deal they could get with a Democrat in the White House. Putting the politics aside, the last thing our economy needs is confiscatory taxes. The fight is going to be interesting to watch!

Thanks in advance for sending me your estimate!