Perhaps Washington isn’t as entirely inept as I initially figured. In the last few days John Boehner has expressed his support of middle class tax cuts. This is a surprising about face for the Republican leader who previously implied that he would not support any more spending related measures by the Obama administration.
Warren Mosler who is running for Senate in Connecticut and is a former hedge fund manager says this is a net economic positive:
“As previously suggested, Boehner reverses course and does what should have been his obvious choice.
This gives everyone in Congress a pre election window to try to tax cut their way to victory before the election.
With the current level of deficit spending already supportive of modest GDP growth, and these latest developments taking away the risk of fiscal tightening through tax hikes, look for prospects for a double dip to be all but forgotten, and equities to firm accordingly.
In sum, federal deficits are supporting enough income/savings/agg demand for modest gdp growth even with a relatively weak consumer and no credit expansion, corps have already demonstrated the ability to generate reasonably good cost cutting/profits with very modest gdp growth, high unemployment keeps unit labor costs under control, and relatively low term interest rates continue to support valuations, housing can’t go any lower and even if starts doubled they would still be relatively modest, and same goes for cars and lots of other areas of deferred consumption and deferred investment.”
Unfortunately, the White House still thinks we need to let the Bush tax cuts expire to help pay for the new tax cuts. Boehner correctly dismisses this, but is clearly still in the camp that says spending will eventually bankrupt the USA:
“Raising taxes on any American, and especially small businesses, in a struggling economy is the exact wrong thing to do. There’s a clear way forward, and that’s for us to come together and pass legislation immediately that cuts spending to 2008 levels for the next year and stops all of the coming tax hikes by freezing all current tax rates for the next two years.”
Baby steps, but it’s a good start. We are not Greece and we are not Europe. We can afford tax cuts and we should never be divided internally and force austerity on our citizenry due to misguided economic and/or political beliefs. Middle class tax cuts should be passed immediately to help bolster a fledgling economy.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.