I don’t see this happening in the US. I mean, the effort to raise taxes on private equity carried interest, while passing the House, is going nowhere in the Senate. And that is far less controversial and a less stupid idea. And remember how the 90 percent tax on AIG bonuses fell flat back in March. The one caveat, as Dan Clifton notes in an earlier post, here is that 2010 is an election year and the combo of big bonuses and high unemployment could cause endangered Ds to play the populist card and try something
Politics and policy from inside Washington
Already, the crazy ideas are returning, such as mortgage cramdowns. But more could be on the way in 2010, says the great Dan Clifton of Strategas (bank bonus tax, American version?):
We are entering a period where bank profits are increasing but lending is declining. Bonus season is on the horizon while job growth remains negative. And bank lobbying on financial regulation is increasing while politician’s approval ratings are declining. Adding even more fuel is that with government spending up and tax revenues lagging, sovereign fiscal issues are rising to the top of policy matrix.
Here is how economic analyst Ed Yardeni sees things:
Could the S&P 500 rise back to its record high next year? I was in Boston on Tuesday, and met with the first money manager on Planet Earth to ask me this question. That is definitely a contrarian’s scenario. I am currently predicting a 2010 high between 1300-1350, and more specifically 1332 by March 6, which would be up 100% on a y/y basis, from the Da Vinci Code bottom of 666. Then I see a nasty correction on growing concerns that the expiration of the Bush tax cuts might depress the economy in 2011. That selloff could last until the November Congressional elections. If Gridlock wins, with the Democrats losing their majority control of one or both houses of Congress, then stocks might resume the bull market.
The insightful Andy Busch of BMO Capital Markets eyes it:
Here’s the ironic duality of the government spending creating jobs and massive deficits: it creates a small amount of short term jobs that steal a larger amount of long term jobs. Deficits are like weeds, when they are small they’re not a problem. When they get large, they block out the growth of what we want. It’s part of the reason why we have a conundrum of low interest rates while the deficit continues to expand. The markets are buying Treasurys because the prospects for strong growth are low and get further reduced with every new public sector spending initiative that adds to the deficit.
Let’s see if President Obama can morph himself away from FDR towards another presidential acronym: JFK. Like the 1960′s, it would be great to see corporate and individual tax cuts accompanied by a strong US dollar policy by the Federal Reserve to bring in foreign direct investment. Unfortunately, it will most likely take a year of sub-optimal growth to get the political momentum moving in this direction. It’s where economic policy needs to go to create sustainable growth.