It's Not Just Taxes, It's the Dollar

From an article on income taxes and the economy:

The proper level of taxation has predictably emerged as a major presidential campaign issue. The irony here is that stock market returns since the 1950s show that the dollar's stability and its direction trump taxes as the greatest indicator of our long-term economic prospects.

Sadly, the dollar's fall this decade has not generated any kind of campaign comment from either side. Oddly enough, both Senators McCain and Clinton support a federal gas-tax holiday for the summer. But it should be said that this gimmick perhaps is the primary campaign's ultimate non-sequitur. To endorse an 18-cent-per-gallon tax cut on gasoline is to miss the point. Pump prices aren't high due to federal taxes, but instead are reaching nosebleed levels thanks to a collapsing dollar.

If it's agreed that stock market returns at the very least indicate long-term economic optimism, the dollar's fall should be issue no. 1 for candidates on both sides. Just as high tax rates erode the value of paychecks and investments, so does inflation. And when stock market returns over the last 60 years are considered, it becomes apparent that all three presidential candidates do not have their eyes on the ball. In short, it's the dollar, stupid.

Today's Republicans want tax cuts, while Democrats want tax increases. Judging by equity returns, both sides ignore the dollar at their peril.

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McCain's 'No new taxes' redux

According to an article on income taxes on dallasnews.com, has made the same promise that George Bush 41 made in 1988: “No new taxes”…

As he received former President George H.W. Bush's endorsement in Houston, John McCain noted that they had two things in common: Both were naval pilots, and both were shot down.
A day earlier, however, the presumptive Republican nominee added a third similarity, when he echoed Mr. Bush's most ill-fated 1988 campaign promise: "No new taxes."

On ABC's This Week with George Stephanopoulos, Mr. McCain pledged that under "no" circumstances would he increase taxes. He reiterated his support to make permanent the 2001 Bush tax cuts he once opposed, adding that he'd also like to eliminate the Alternate Minimum Tax.

It's a multibillion-dollar promise that Mr. McCain could rue if he wins the White House – and one more example of how appeals to various groups in primary campaigns can create problems down the road for a winning candidate.

The problem is not confined to the Republicans. Barack Obama and Hillary Clinton have promised to increase federal programs beyond what they may be able to deliver. Mr. Obama also says he'd withdraw all U.S. combat troops from Iraq within 16 months.

According to the Center on Budget and Policy Priorities, a liberal think tank, making permanent both the Bush tax cuts and the AMT fix would cost the government $3.6 trillion in revenues over the next decade. Repealing the AMT would cost even more.

Upper-income taxpayers would be prime beneficiaries of both moves.

A recent NBC-Wall Street Journal poll showed those surveyed evenly split on the economic merit of tax cuts. In an Associated Press/Ipsos poll, respondents put tax cuts below pulling out of Iraq and increasing federal domestic spending when asked what would help fix the economy significantly.

Reciting the tax-cut mantra may help Mr. McCain overcome some GOP doubts about his fealty to conservative principles, but it could cause him grief if he wins.