Democrat policies would damage the U.S. economy
Claims her policies will improve outcomes are nonsense
Kamala Harris’ policies, strongly endorsed by Bernie Sanders at the DNC last night, have surface appeal and speak to the leftists who believe socialism is a solution to wealth and income inequality in America. Sadly, socialism will exacerbate both and the Harris policies will destroy economic growth, fuel even higher inflation and lead to a serious and persistent decline in U.S. standards of living, if the U.S. electorate is stupid enough to elect her because she is a woman, black and not Donald Trump, which are her only rational appeals to voters.
Let’s review the bidding. Policy and likely outcome set out below, starting with taxes:
Policy: Raise capital gains taxes to 44.6% from 25%. Tax unrealized gains at 25% for wealthy individuals.
Likely outcome: Lower stock market prices with lower returns to social security and pension funds; flight of investors to other jurisdictions; higher enforcement costs of cumbersome effort to tax unrealized gains. Policy will be challenged in courts as unconstituional and will likely fail legal scrutiny.
Policy: Increase corporate taxes to 28% from 21%.
Likely outcome: Corporations will increase prices to pass on the higher tax costs, fueling higher inflation. The higher taxes will be paid primarily by the middle and lower classes who are the customers on whom the tax burden will ultimately fall. Since 28% is the highest corporate tax rate among the G7 countries, multinationals will shift output to lower tax jurisdictions increasing domestic unemployment.
Policy: Increased “death tax”, effectively taxing unrealized gains on death just as Canada does
Likely outcome: Will produce higher tax revenue but cause many small businessess to change hands as the tax burden on heirs compels the sale of the business. On balance a sensible policy which needn’t be labeled a “death tax” if executed just like Canada’s tax consequences of death - assets deemed sold at fair value and taxed as capital gains.
If executed without repeal of the current U.S. death tax, will impose a much higher tax on estates and increase complexity and tax cost of dying.
Policy: Quadruple 1% tax on share repurchases to 4%.
Likely outcome: Fewer share buybacks. Not a consequential change and may prompt higher dividends for companies with excess cash which is a positive outcome.
Policy: $37 billion tax on American oil & gas industry.
Likely outcome: Lower U.S. oil production, higher imports, less favorable balance of trade.
Policy: Increase Medicare taxes by $32 billion
Likely outcome: Will be offset by “medicare for all” and adding “dental care”. Essentially little more than higher taxes and their implications for economic growth.
Policy: Many other tax increases including higher taxes on real estate transactions, on “carried interest” benefits to private equity, and on income earned in retirement accounts.
Likely outcome: Higher costs on small businesses. Taxing “carried interest” benefits is a reasonable policy. Taxing income earned in retirement accounts above a certain level is inequitable and likely to fail legal challenges of equal treatment under the law.
Summary with respect to taxes: Some Harris policies are sensible, others likely unconstitutional, and all point to lower economic growth and will tend to increase inflation.
Non-tax policies:
Policy: Attack on price gouging by grocers
Likely outcome: A totally misguided policy promoting the nonsense that higher profits of an industry that earns 1.2% of sales caused the 20% rise in the cost of living under Biden and Harris. Will no alter inflation, just increase litigation costs.
Policy: Price controls
Likely outcome: Shortages. Neither farmers, food processors or grocers will sell goods at a loss. The promise is leftist nonsense.
Examples:
Fix the price of bread at $2.00 a loaf and watch bread disappear from store shelves
Fix the price of eggs at $2.00 a dozen and watch as eggs are no longer available
Fix the price of milk at $2.00 a gallon and watch as milk disppears from store shelves
Free markets produce the lowest prices. Price controls compel shortages. Economic theory is not that complex. Here’s a chart showing the trade-offs for gasoline, as an example.
With price controls, stores start to resemble this one.
Harris, like Sanders, is in every respect other than in name a Communist, a system of government that has caused untold misery throughout history. But she has an even chance of being elected and, if she is, I will take a major short position on the S&P and keep a healthy cash balance. A Harris administration is a real and present danger to U.S. prosperity.