One on One with Alec Phillips, Political Analyst for Goldman Sachs
Tuesday, January 08, 2008
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SUSIE GHARIB: Voters headed to the polls in New Hampshire today to choose their candidates in the next critical step in the presidential race. New polls show that Barack Obama leads Hillary Clinton and on the Republican side, John McCain is slightly ahead of Mitt Romney. Joining us now to talk more about the New Hampshire primary and give us his analysis, Alec Phillips, political analyst with Goldman Sachs. Hi, Alec.
ALEC PHILLIPS, POLITICAL ANALYST, GOLDMAN SACHS: Hi, how are you?
GHARIB: I'm fine, thank you. As you know, history shows us that the New Hampshire primary is a pivotal primary. Can the candidate who's lost the Iowa caucuses and New Hampshire still get his party's nomination?
PHILLIPS: It's pretty unusual. We saw that in 1992 with Bill Clinton. However, that was a little bit of an unusual election given that an Iowa senator was actually running in the Iowa caucus followed by a Massachusetts senator in New Hampshire. So you sort of had a local favorite in both races. Clinton actually managed at that point to get a second-place finish in New Hampshire and that was enough to give him momentum into the race that lay ahead.
GHARIB: I understand that in New Hampshire the unemployment rate is 1 percent below the national average. Give than more people have jobs in that state, do you think that pocketbook issues are of importance to New Hampshire residents?
PHILLIPS: You know, most polls do show that the economic issues are going to resonate in this election generally and are still important in New Hampshire. There are a number of things that are important in New Hampshire and while the order may change a little bit, the types of issues that come up are the same -- health care, the economy, Iraq, taxes and so forth.
GHARIB: As you look at Senator Obama's economic record, what kind of economic policies can we expect from him if he were to be elected president?
PHILLIPS: Well, I think one of the big issues for investors over the course of 2008, whether it's Obama or Clinton on the Democratic side, but in particular Obama, will be how does the next administration treat the capital gains and dividend tax rates which are set to expire in 2010. Now, Obama's not substantially different from Clinton on this, but he's at least a little bit more aggressive in terms of discussion of allowing that tax break both on the capital gains side and the dividends side to rise to at least 20 percent and potentially as high as 28 percent. And so to the extent that we were to see that, and I think that it's plausible given that we also expect to see Democratic gains in the House and Senate, that would really be an issue for investors getting closer to the election as they have to really think about whether or not they want to hold stocks that have appreciated over several years going into 2009.
GHARIB: So who is it that Wall Street is favoring in this election? Usually Wall Street has a favorite candidate. Who is it this time?
PHILLIPS: Well, I don't know that Wall Street as such has any one favorite candidate. You can look at it a couple of different ways. As I mentioned on the tax side, I think Wall Street in general would like to see lower taxes nationally, in terms of general income taxes and certainly in terms of investment-related taxes. And so in that respect, I think they would really favor more of a Republican candidate, but with that said, there are a number of indicators that show that there's actually a lot of support for both Obama and for Clinton on the Democratic side. One thing that you could actually look at are campaign contributions and while it might surprise some, you actually have Obama and Hillary taking in as many, if not more contributions, from Wall Street employees as you do any of the Republican candidates.
GHARIB: And how about on the philosophical side? You've said that there really aren't that many differences between McCain and Obama when it comes to business and economic issues. Elaborate on that.
PHILLIPS: Well, I think in some places there are huge differences. In other places the differences really aren't so great. So if you're looking at the macroeconomic perspective, Obama's tax policy is clearly going to be a lot different from McCain's. He's advocating letting the tax cut expire on cap gains and dividends, as well as potential increases both in the payroll tax cap and on the upper income brackets. So you do have a lot of things going on there. Now he would also offer some offsetting tax cuts to lower and middle-income earners.
On the McCain side clearly, he's much more in favor of extending the tax cuts, even though he did actually vote against them in 2001 and 2003 where there are some similarities actually on some sector-specific issues. And so one that we would point out is pharmaceuticals. If you're looking at the general election in which McCain and Obama might be the front- runners at this point, it's interesting to note that on issues like drug importation, the negotiation of crises under Medicare and a couple of other things, their health care positions aren't actually that much different. Now on health reform and some of the bigger high-profile issues, sure they're a lot different. But on some of those things that investors have worried about over the last couple years, they're not that far apart.
GHARIB: I'm sorry I have to jump in, but we've just run out of time. Interesting analysis. We'd love to hear more. We'll come back to you another time. Thank you so much, Alec.
PHILLIPS: Thanks a lot.
GHARIB: My guest tonight, Alec Phillips, political analyst with Goldman Sachs.
