Markets at Midyear 2008 - McCain vs. Obama
Friday, July 04, 2008PAUL KANGAS: There is little doubt the year's second half will be dominated by the presidential campaign with the economy expected to be a key issue. Washington bureau chief Darren Gersh discussed that with Goldman Sachs political analyst Alec Phillips. He began by asking Phillips where Senators Barack Obama and John McCain are likely to differ when it comes to economic policy.
ALEC PHILLIPS, WASHINGTON ANALYST, GOLDMAN SACHS: We view the tax differences as probably one of the key differences in 2009 and going forward between the two candidates, McCain, for instance, would just extend the capital gains and dividend rates and for that matter all of the other tax cuts expiring in 2010. Obama would let some of those expire, potentially come up with a new system for capital gains and dividends.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: So there has been a study out from the Center on Tax Policy which looked at both of these candidates' tax plans and said basically they're going to add trillions of dollars to the debt. Are these plans that the markets are going to welcome and say we can afford these? Or are these plans that the markets are going to look at and say they've got to change these because we can't afford them?
PHILLIPS: Under either scenario you're probably going to see tax policy add to deficits after 2010. Really, the question is on new tax cuts or on extending a certain amount of existing tax cuts -- for instance, capital gains, dividends, the upper-income brackets, that's where the differences are, but both have proposals that would actually cost a decent amount of money.
GERSH: Both men agree on the cap-and-trade system that they want to put in place a cap-and-trade system on carbon emissions to deal with greenhouse gas emissions. It seems to me that they agree on a very large change to the economy. Does that surprise you?
PHILLIPS: The cap-and-trade program, if it were implemented, for instance, if you look at the Lieberman-Warner bill that the Senate took up a few weeks ago would be interesting because at the same time that consumers are pressing for lower energy prices, this would essentially be a tax on energy, albeit a relatively small tax in the grand scheme things. So if you look at the annual revenue amounts, you're really talking about less than $100 billion a year. That sounds like a lot, but considering that the Federal government right now pulls in over $2 trillion a year in revenue, it still is actually a fairly small moving piece.
GERSH: Is health care fading as an issue because both of them are talking about big changes in health care but it's not getting much attention lately.
PHILLIPS: I think actually health care reform, despite the fact that it's not getting a lot of press right now, is going to be a pretty big issue in 2009 assuming that consumer confidence is still low and that the economic weakness is still a major concern. Ultimately, health reform is something that the government can do for people that will actually improve their financial situation as opposed to for instance climate-change legislation which, while it could potentially be neutral to their financial situation is unlikely to be seen as helping them significantly.
GERSH: Will the economy still be the number one issue when the next president is sworn in? And if we don't see a much stronger economy, are we going to get another stimulus plan?
PHILLIPS: It's hard to see how the economy is not going to be the number one issue by the time the next president is sworn in. If you look at where consumer sentiment is right now, if you look at where home prices are and our own economic forecast for that matter, we do expect to see weakness start to emerge again toward the end of the year as the current stimulus package fades away. That I think is going to increase interest in the market in figuring out what the next president is going to do to stimulate the economy, both in terms of consumer spending, potentially another round of checks, something like that, as well as potential further intervention in the credit and mortgage markets to the extent that housing continues to decline and the market weakens yet again.
GERSH: OK, Alec Phillips, Goldman Sachs, thanks for your time.
PHILLIPS: Thanks.
