Why Not Eliminate the Cap-Gains Tax for Everyone? -- By: Larry Kudlow

Why Not Eliminate the Cap-Gains Tax for Everyone? -- By: Larry Kudlow: "

The Case-Shiller home-price index increased yesterday for the third month in a row. That’s terrific news. After a 40 to 50 percent drop in home prices in recent years, sales are picking up, because prices are way down. That’s also great. Markets work.

But here’s what I don’t like about this story: Big, central-planning, government-directed tax preferences for housing, like the $8,000 dollar tax credit for new buyers. Or even the popular mortgage interest deduction. And let’s not forget perhaps the biggest one of all: Home sales are basically capital-gains-tax free. That passed back in 1997. Many people (including myself) believe it helped create the bubble.

Why not eliminate the capital-gains tax for everyone and all sectors, including investors and stocks and bonds? Why direct it only to housing? Let’s abolish the capital-gains tax altogether. Let’s quit double-taxing investment, which is what capital gains does. But let’s do it for everyone and everything -- not just housing. While we’re giving all these preferences to housing, what about manufacturing? What about transportation? Or health care? Or any other sector in the economy for that matter?

We also could be cutting business tax rates across-the-board for companies big and small.

And for all individuals and businesses, why not a simple, low, flat-rate tax? Somewhere between 15 and 20 percent? Get rid of all of the special preferences and deductions in the code. Stop favoring one sector at the expense of the others. Incidentally, this would stop the corruption of K-Street lobbyists who love to get these preferences in there.

Let’s make the tax code simple, fair, and pro-growth, to unleash prosperity. Let’s stop the political direction of the economy, and let’s substitute a market direction of the economy. A true flat tax would do it.

If you get to keep more of what you earn and invest at the lower tax rate -- if you tax something less -- you’ll get more of it. If you tax the whole economy less -- not just housing, but the entire economy -- you will get a much more prosperous and healthier economy. At a time when we’re all worried about economic growth, we ought to be thinking hard about this.

---

"

Steve: I like his thinking!

Quote of The Day

"Government isn't the solution to our problem, government is our problem." -Ronald Reagan

Market Stats

*Market Stats as of Sept. 28, 2009.

Protectionists are Profoundly Confused

Protectionists are Profoundly Confused: "
In a letter appearing in Sunday’s Washington Times, protectionist William Hawkins accuses Adam Smith of being “dreadfully wrong” to insist that the ultimate goal of economic activity is consumption rather than production.

Alas, the dreadfully wrong one is Hawkins. He confuses means with ends. Flour, sugar, apples, an oven, and labor are necessary ingredients for baking an apple pie, but these means are valuable in this use only if someone wants to consume the pie. If no one wants to eat apple pie, then using these ingredients to produce the pie would be wasteful.

Adam Smith correctly understood that the desire to consume is what justifies production, and not vice-versa. If Mr. Hawkins were correct that the ultimate goal of economic activity is production, then he should be just as pleased to have set before him for dessert a fresh-from-the-oven sawdust-and-earthworm pie as he is to have an apple pie.
"

Steve: This is a good explaination of what is wrong with protectionist thinking. We have to produce things that people actually desire, otherwise we are wasting resources that could be used elsewhere. Just producing things to keep people busy, is unproductive.

Centering the allocation of resources based on production will lead to shortages for desired goods and surpluses of undesirable goods.

One Reason European Health Care Works: America

One Reason European Health Care Works: America: "

A 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42 (see chart above).

Why is this important? One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up.

So socialist Europe, by using American drugs is profiting from good old-fashioned American free enterprise. the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems [MP: Example here of a report cited earlier in this article], because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.

~From 'The Pharmaceutical Umbrella,' by Benjamin A. Plotinsky in City Journal

HT: Art Little

"

Quote of The Day

“A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicity.” -Thomas Jefferson

Quote of The Day

"The Constitution only guarantees the American people the right to pursue happiness. You have to catch it yourself." -Benjamin Franklin

Interesting Take on The Economy From Mark J. Perry

Originally posted by Mark J. Perry at the Enterprise Blog.

A Google News search shows that the phrase “since the 1930s” has been used 7,454 times in the last month, and the phrase “since the Great Depression” has been used almost 6,000 times in the last month, and most of these news references are comparisons of today’s economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase “since the 1980s” has been used only 758 times in the last month.

By comparing today’s economic conditions to the 1930s and the Great Depression, the news media have apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Compare for example some of the key economic variables today to the peaks for those variables in the early 1980s (see graph above).

We are not even yet anywhere close to the economic conditions of that period. For example, the prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today’s 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today. So before we start talking about the “worst economy since the 1930s” couldn’t we first look at the early 1980s as a benchmark of how bad economic conditions can get, using a more recent period?

And consider that as bad as the economic conditions were back in the early 1980s, the U.S. economy started on an economic expansion in November of 1982 that didn’t end until July 1990, 92 months later, and marked the third longest expansion in U.S. history. Given the current environment with historically low interest rates and inflation, today’s economic and financial conditions are much more favorable for economic growth than the conditions of the early 1980s. If the economy of the early 1980s recovered even when handicapped with historically high interest rates and inflation, today’s economy is much better positioned for what Larry Kudlow calls the pending “barnburning economic recovery.”

Originally posted by Mark J. Perry at the Enterprise Blog.

Quote of The Day

“Another bunch of ignorant bull**** about your children: school uniforms. Bad theory! The idea that if kids wear uniforms to school, it helps keep order. Hey! Don’t these schools do enough damage makin’ all these children think alike? Now they’re gonna get ‘em to look alike, too?

And it’s not even a new idea; I first saw it in old newsreels from the 1930s, but it was hard to understand, because the narration was in German! But the uniforms looked beautiful. And the children did everything they were told and never questioned authority. Gee, I wonder why someone would want to put our children in uniforms. Can’t imagine.”
~ George Carlin

Jobless Claims Declined

Initial Jobless Claims (United States) {US} OBSERVATION PERIOD: SEP 19 (Weekly)

ACTUAL : 530K

PRIOR : 545K

REVISED : 551K

SURVEY : 550K (Mean: 548K, High: 565K, Low: 510K)
 
 
Continuing Claims (United States) {US} OBSERVATION PERIOD: SEP 12 (Weekly)

ACTUAL : 6138K

PRIOR : 6230K

REVISED : 6261K

SURVEY : 6183K (Mean: 6169K, High: 6250K, Low: 6100K)
 
The number of workers filing new claims for jobless benefits unexpectedly declined last week. Also, continuing claims were down.
 
Initial claims fell 21,000 to 530,000 in the week ending Sept. 19. Economist expected an increase of 5,000.
 
Continuing claims, which are claims drawn by workers for more than one week, fell by 123,000 to 6,138,000 from the prior week's revised level of 6,261,000.
 
The unemployment rate ending Sept. 12 fell by 0.1% to 9.6%.

Volatility at 1-Yr. Low, Financial Conditions at 2-Yr. High

The Chicago Board Options Exchange SPX Volatility Index (VIX) reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st & 2nd month expirations are used until 8 days from expiration, then the 2nd and 3rd are used.

The VIX has been hovering around its lowest levels in more than a year. Its 52 week range was 22.48 - 89.53. This is an indication that investor sentiment and market volatility have improved significantly over the past year.

Also, shown below, the Bloomberg US Financial Conditions Index reached a new high for 2009. The index combines yield spreads and indices from Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average during the period.

The Bloomberg US Financial Conditions Index closed at the highest level (-.50) since August 2007. This is an indication that financial conditions are indeed improving. They are beginning to near more normalized levels.

Google Sync: Now with push Gmail support

Google Sync: Now with push Gmail support: "Earlier this year, we launched Google Sync which allows you to synchronize your Gmail Contacts and Google Calendar with your iPhone, Windows Mobile, and S60 devices. Today, we're adding Gmail support to Google Sync for iPhone, iPod Touch and Windows Mobile devices.

Using Google Sync, you can now get your Gmail messages pushed directly to your phone. Having an over-the-air, always-on connection means that your inbox is up to date, no matter where you are or what you're doing. Sync works with your phone's native email application so there's no additional software needed. Only interested in syncing your Gmail, but not your Calendar? Google Sync allows you to sync just your Contacts, Calendar, or Gmail, or any combination of the three.


To try Google Sync, visit m.google.com/sync from your computer. If you're already using Google Sync, learn how to enable Gmail sync. Since push Gmail has been a popular request on our Product Ideas page and Help Forum, we look forward to hearing your feedback, so drop us a line and let us know how it's working or what you'd like to see next.
"

Steve: One more reason to get the iPhone. I just wish AT&T got better service where I live. I might just hold off for a little bit. Sprint gets the HTC Hero next month, it looks pretty sweet, and has the android OS.

Art Laffer’s Four Prosperity Killers

Art Laffer’s Four Prosperity Killers: "Right now is as good a time as any to revisit my old friend Art Laffer’s four prosperity killers. You can put a check mark next to each one.

1. Rising tax rates
2. Inflationary money
3. Trade protectionism
4. Government control/re-regulation

And while we’re on the subject, make sure to check out Art's terrific op-ed in today’s Wall Street Journal.

He argues that while Fed policy was undoubtedly important, it was ultimately tariffs, rising taxes, and currency devaluation which ruined the 1930s. According to Art, we face the same dangers today.

He’s dead right.

"

Real Lesson from Great Depression: Tax Damage

Real Lesson from Great Depression: Tax Damage: "

Arthur Laffer in today's Wall Street Journal ('Taxes, Depression, and Our Current Troubles') writes:

In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25% (see charts above). (That's not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.

But the tax hikes didn't stop there. In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000.

Because of the number of states and their diversity I'm going to aggregate all state and local taxes and express them as a percentage of GDP. This measure of state tax policy truly understates the state and local tax contribution to the tragedy we call the Great Depression, but I'm sure the reader will get the picture. In 1929, state and local taxes were 7.2% of GDP and then rose to 8.5%, 9.7% and 12.3% for the years 1930, '31 and '32 respectively.

The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

"

Philly Fed Index

Philadelphia Fed. (United States) {US} OBSERVATION PERIOD: SEP (Monthly)

ACTUAL : 14.1

PRIOR : 4.2

REVISED : - -

SURVEY : 8.0 (Mean: 8.3, High: 14.4, Low: 2.5)

Philly Fed Index is a measure of business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above 0 it indicates factory-sector growth, and when below 0 indicates contraction.

This index is published by the Philadelphia Federal Reserve Bank on the third Thursday of the month at 10 am EST. It is considered to be a good gauge of general business conditions.

Actual number came in at 14.1, with 8.0 being expected, and 4.2 the prior month. This is an indication of increasing business growth.

TED Spread Has Fallen 450 Bps in Last Year, Now At The Lowest Level in 5 Years, Since June 8, 2004

TED Spread Has Fallen 450 Bps in Last Year, Now At The Lowest Level in 5 Years, Since June 8, 2004: "The TED spread is the difference between the risk-free three-month T-bill interest rate and three-month LIBOR (includes a credit risk premium), and is considered to be a good indicator of the overall amount of perceived credit risk in the economy. A year ago on September 15, 2009 the TED Spread jumped by 65.5 basis points (from 134.855 bps to 200.3588 bps) as Lehman Brothers filed for bankruptcy and fears about credit risk soared. Two days later on September 17 as fears about credit and financial risk intensified, the TED Spread jumped by another 82.6 basis points (bps) to more than 300 bps, setting a new record (back to at least 1990) for the largest one-day increase in the TED spread (that record still stands), and setting a new record for the highest TED Spread to date.

At the height of the financial crisis about a month later, the TED Spread hit 456.485 basis points on October 13, 2008, an all-time record. As the credit and financial markets have gradually healed, the TED Spread has fallen by more than 450 bps to the current level of about 15.75 bps, the lowest level in more than 5 years, since June 8, 2004 (see chart above). One more sign that the recession has ended.

"

Steve: This is a good indication of credit freeing up in financial markets.

It's Not Bloomberg, But it's Free!

Yesterday I was checking out Google Docs. I have never spent much time with it, because it's no Excel, but it does have some cool features. One feature in specific caught my eye. In conjunction with Google Finance, Google Docs can become a useful market tool. Now it's no Bloomberg, and doesn't have anywhere near the functionality that Bloomberg's API add-on for Excel has, but it's a start. Here is more detailed instructions on how it works.

The GoogleFinance function uses the syntax: =GoogleFinance("Symbol","Attribute"); where "Symbol" represents the ticker of the stock or mutual fund you're looking for, and "Attribute" represents the type of market data desired (price, volume, change, etc). Also, the function allows you to get historical data on stock price, etc. So, this tool can be leveraged to create automated watch lists and models using Google Docs. Currently the amount of data that can be pulled from Google Finance on one sheet is limited, but for being free, one can't complain too much. Bloomberg limits you to 500,000 pulls per day, and I've reached that limit a few times. But, for those who want a free alternative, this works for basic data. Hopefully, Google will add the ability to pull data from financial statements (Revenue, NI, etc.).

To find the current market price of Google (GOOG), use the syntax: =GoogleFinance("GOOG","Price"); and the current price will be updated continuously.

Current market attributes available:

• price: market price of the stock - delayed by up to 20 minutes.
• priceopen: the opening price of the stock for the current day.
• high: the highest price the stock traded for the current day.
• low: the lowest price the stock traded for the current day.
• volume: number of shares traded of this stock for the current day.
• marketcap: the market cap of the stock.
• tradetime: the last time the stock traded.
• datadelay: the delay in the data presented for this stock using the googleFinance() function.
• volumeavg: the average volume for this stock.
• pe: the Price-to-Earnings ratio for this stock.
• eps: the earnings-per-share for this stock.
• high52: the 52-week high for this stock.
• low52: the 52-week low for this stock.
• change: the change in the price of this stock since yesterday's market close.
• beta: the beta value of this stock.
• changepct: the percentage change in the price of this stock since yesterday's close.
• closeyest: yesterday's closing price of this stock.
• shares: the number of shares outstanding of this stock.
• currency: the currency in which this stock is traded.

Current attributes for mutual funds:

• closeYest: the NAV of a mutual fund.
• date: date at which NAV (net asset value) was reported.
• returnytd: year-to-date return total.
• netassets: The day-end net assets of the mutual fund. Net-asset figures are useful in gauging a fund's size, agility, and popularity. They help determine whether a small company fund, for example, can remain in its investment-objective category if its asset base reaches an ungainly size.
• change: change in NAV value between the most recent reported NAV, and the NAV prior to that.
• changepct: the % change in the NAV.
• yieldpct: Also known as the distribution yield, Morningstar computes this End Yield figure by summing the trailing 12-month's income distributions and dividing the sum by the last month's ending NAV, plus capital gains distributed over the same time period. Income refers only to interest payments from fixed-income securities and dividend payments from common stocks.
• returnday: one-day total return.
• return1: one-week total return.
• return4: four-week total return.
• return13: thirteen-week total return.
• return52: 52 week total return.
• return156: 156 week total return.
• return 260: 260 week total return.
• incomedividend: the amount of the most recent cash distribution for the fund.
• incomedividenddate: the date the above occurred.
• capitalgain: the amount of the most recent capital gain distribution from the fund.
• capitalgaindate: the date of the above.
• morningstarrating: the Morningstar "star" rating.
• expenseratio: The percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio.

I created the watch list below in about 10 minutes. During trading hours it updates continuously. Click the image to enlarge.

Here is the link to the worksheet in Google Docs.
Another example can be found here.

S&P 500 Sector Stats

Below is a table of returns and P/E for the S&P 500 separated by sectors. Data is as of today.

Click to enlarge.

Market Stats