American Shareholders Association

McCain Shows Strength on Free Trade

For all his “triangulating” tendencies, Senator McCain has stood strongly in the conservative corner on the issue of trade. McCain recently visited Colombia to support a Bush-proposed trade agreement with the country. He also expressed a desire for more broad reaching initiatives that would result in a “hemispheric free trade agreement.” Many worry that McCain’s promotion of free trade could harm him in negatively impacted swing states such as Ohio and Michigan. Nevertheless, it is nice to see McCain standing firm on sound economic principles that give our economy a positive push.  Read more on this issue here.

Job Losses and a Bear Market: Time To Raise Taxes?

So, the Dow is now officially in bear territory.  Unemployment is stuck at a mediocre 5.5%, and the economy shed another 62,000 jobs last month.

Sounds like it's the perfect time to raise the capital gains and dividends tax.

Huh?

Well, that's what Barack Obama says he wants to do.  He'd raise the dividends tax rate from 15% to 39.6%.  He'd raise the capital gains tax rate from 15% to as high as 28% (his words). 

Nothing like kicking investors when we're down.

Stagnant Wages Myth

Ben Stein has an op-ed in today's NYT that repeats an old saw: real wages are stagnant for private sector employees since 1970.  Unfortunately, this analysis ignores several factors:

• The biggest is the entry of women into the workforce.  If private sector wages are going to remain a relatively-constant share of the economy, then more workers will create a crowding out and a displacement effect
• Another is the heightened levels of immigration since 1970.  Immigrants tend to skew younger and less skilled.  Hence, their wages aren't as high
• The migration of older workers from the workforce.  As an older worker who retires is replaced by, say, a younger immigrant, the aggregate effect on wages is a decline

The bottom line is that this is not a problem.  People are making choices for themselves that make sense for their household, even if it might not look good in the aggregate.

There's some argument to be made that single-earner breadwinners cannot be assured of a "family wage," but that's only if you ratchet up the definition of what a family "needs."  A single earner can certainly support a family using a 1965 basket of goods and services.  It's only when you add in the deluxe cable package, the third bathroom, and the fourth car that things get problematic here.

Shareholders Begin Preparing For Death Tax D-Day

WSJ today has a report on how America's investor class is preparing for an uncertain death tax world.  Here's a snippet:

Analysts at Deloitte Tax estimate the federal estate tax for a hypothetical $5 million estate under the McCain plan would be $675,000 less for 2009 than under the Obama plan. For a $10 million estate, the savings under the McCain plan would be nearly $2.2 million. For a $50 million estate, the difference would be more than $14 million. For a $100 million estate, the difference would be more than $29 million. (These numbers reflect federal tax only; many states levy their own taxes.)

Still think the election doesn't matter?

Pair of WSJ Items on Territoriality

Today appears to be international tax day at the WSJ. 

First, there's an editorial on how Europeans can escape their confiscatory tax regimes, while U.S. entrepreneurs are stuck.

Also, there's a great retrospective on the repatriation provisions of the American Jobs Creation Act of 2004, which resulted in a $300 billion infusion of capital into the United States.

How to Scare Away Business: Worldwide Taxation

Is your business being hindered by high corporate tax rates? If so, you can always take your money overseas. So long as you don’t come back…

The U.S. currently operates under a worldwide tax scheme. That is, it taxes all U.S. companies, regardless of where they are located. U.S. businesses operating abroad are taxed upon reentry into the country. This means that companies fleeing the second highest corporate tax rate in the world won’t be coming back.

The U.S. is virtually the only country operating under a worldwide tax system. Most countries utilize tax territoriality, which involves taxing all business within a country, but not business conducted abroad. Unless tax policy changes, America's 35 percent corporate tax rate will continue to tell businesses to “get out” while the worldwide tax system tells them to “stay out.”  Read more on this issue here.

US Chamber Gets DOL to Weigh in on Pension Activists

The Chamber last week received a letter from the Department of Labor clarifying that pension plan fiduciaries cannot, consistent with ERISA, "increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote or oppose union organizing goals or collective bargaining objectives."

In other words, pension fund administrators have one duty--maximizing investment returns.  Shortchanging retirees and future retirees in order to advance secondary goals is a violation of the law.  That won't stop unions from trying, though.

2007 "Friend of the Shareholder" Award Winners Named

On Friday, ASA released its 2007 "Friend of the Shareholder" awards.  We should have pictures up soon.  For now, we have the House abstracts, the Senate abstracts, and the scorecard itself.

Chilean Social Security Personal Accounts

José Piñera, former Chilean secretary of labor and social security, was a key player in the personalization of Chile’s social security system. He recently discussed the system’s success:

Chile allowed every worker to choose whether to stay in the state-run, pay-as-you-go social security system or to put the whole payroll tax into an individual retirement account. For the first time in history we have allowed the common worker to benefit from one of the most powerful forces on earth: compound interest.

Some 93% of Chilean workers chose the new system. They trust the private sector and prefer market risk to political risk. If you invest money in the market, it could go up or down. Over a 40-year period, though, a diversified portfolio will have very low risk and provide a positive rate of real return. But when the government runs the pension system, it can slash benefits at any time.

There have been enormous external benefits: the savings rate of Chile was 10% of gross national product traditionally. It has gone up to 27% of GNP. The payroll tax in Chile is zero. Of course we have an estate tax and an income tax, but not a payroll tax. With full employment and a 27% savings rate, the rate of growth of the Chilean economy has doubled.

That does not mean that we do not have any problems in Chile, but I believe that a society based on individual freedoms -- economic, social and political -- is a much more prosperous and lively society.