2008 Election Year Investing
This is an election year and it would appear that one party appears to possess more energy, the Democrats. Many of them are talking about raising taxes at a time when the global economy is becoming increasingly competitive and many of our leading trading partners are slashing tax rates. Consequently, some observers are saying if a tax-hiking president were to win the White House, it would discolor their long-term outlook for U.S. equities.
This is a much more important election – or perhaps it’s important in very different ways – than many people think. It’s also much simpler that it appears, although maybe these issues will sharpen as the election gets closer. There are really only two issues that I see.
Much or most of the sustainable growth in employment and output in the decade had been attributable to the 2001 and 2003 tax cuts; one candidate will be in favor of maintaining them, and one will favor letting them expire, which will equate to a massive (and disastrous) tax increase. The latter candidate will probably also favor dealing with the looming insolvency of Social Security through increases in payroll taxes, and be more inclined to retreat into protectionism, both of which would be very deleterious to the American economy.
The other issue will be the war on Islamofascism in general, and U.S. policy in Iraq in particular. One candidate will favor continuing the fight to stabilize Iraq, and thus to thwart Iran. The other will propose an announced schedule of rapid withdrawal, effectively ceding the region to Iran, and to chaos. So the choices are going to be very clear, because the candidates – even as they move toward the center in the general election campaign – are going to be philosophically very far apart.
The economy and the markets may be the wild card in this race, because the third and fourth quarter of 2008 are likely to show very powerful resurgence in output and especially in corporate earnings. Of course, perception will be the key: Bush 41 ran for re-election on the message that the recession was over and strong growth was back. This was true, but nobody believed him. In any event, I’ll stay invested.