Thursday, June 21, 2007

Prosperity Killers

We took another look at Washington’s war on prosperity on last night's Kudlow & Company .

We were joined by Dan Clifton, Director of Policy Research at Strategas Research Partners. Dan’s one of the best in the business. Here’s an excerpt from our conversation:

KUDLOW: So, what about this Washington war against prosperity, especially the high tax story? We've been following this all week, going back to last week. Precisely because it could derail this glorious bull stock market…Dan, what happens here? The Blackstone tax has now been referred to the Treasury and the SEC. But you think there's more where this is coming from.

DAN CLIFTON: That's right, Larry. What we're warning our clients is this: last week's announcement was the first piece of news that was designed to basically block private companies from being able to go public.

Now they'll come back in the next few weeks and look to tax-carried interest on private hedge funds and private equity, who are not going public. That's where the real money is—about $6 billion a year that could be used to offset new spending or social tax cuts.

KUDLOW: You think the Blackstone tax will pass, Dan? What's your estimate, guesstimate? You think it'll pass? It's going to have to get through both houses of Congress.

DAN CLIFTON: Yeah, well, I think that it could pass both houses of Congress. The question is what vehicle it’s attached to. If it's attached to a provision that has broad support—such as education tax cuts or possibly the alternative minimum tax reform—then I think the Bush administration is in a really hard position to veto the bill itself. (End)

This latest round of congressional class warfare is bad news.

Market historians will recall that twenty years ago, a Ways and Means Committee threat to levy a big tax that would block the merger wave spelled trouble for the stock market. In fact, the official Federal Reserve report said that it played a role in the October '87 crash.

Why is Washington waging war on prosperity?