Tomorrow is Super Tuesday, when ten states will vote to assign delegates to all remaining candidates running for president this year. The ten voting in both the Democratic and Republican races are Alabama, Arkansas, Georgia, Massachusetts, Minnesota, Oklahoma, Tennessee, Texas, Vermont, and Virginia. In addition to these ten voting for both sides, Alaska will vote in the Republican race, and Colorado will vote in the Democratic. Alaska’s Democratic caucus is March 26. Colorado’s Republican Party will not vote at its caucus, preferring to leave its 37 delegates unpledged to a specific candidate.
The field of candidates has narrowed to the following five contenders with reasonable chances of winning their party’s nomination to compete in the general election this fall: Hillary Clinton and Bernie Sanders on the Democratic side; Donald Trump, Ted Cruz, and Marco Rubio on the Republican side. The Democratic candidates need 2,383 delegates to win the nomination. The Republicans need 1,237. These are the current standings after last Tuesday’s Nevada caucus, according to the Associated Press:
Clinton 505 (1,878 short)
Sanders 71 (2,312 short)
Trump 82 (1,155 short)
Cruz 17 (1,220 short)
Rubio 16 (1,221 short)
After a brief overview of the economic platforms of the five candidates, in the order they’re presented above, which is based on alphabetizing the party names then putting the candidates in descending order of current delegate count, I’ll spend more time considering the plans of Sanders and Trump.
Hillary Clinton wants to boost economic growth by reducing taxes on the middle class and small businesses. After Sanders gained traction with his social welfare ideas, Clinton added that she wants to reduce income inequality by raising the minimum wage to $12 per hour nationally and to $15 through state and local efforts.
She would increase short-term capital gains taxes on people earning at least $400,000 per year, extend a tax cut of up to $2,500 per student to help defray the cost of college, and provide a 15% tax credit to companies that share profits with workers on top of wages and pay increases.
Bernie Sanders is pushing democratic socialism, an ideology different from what most people think of when they hear the word “socialism,” which is the Marxist-Leninist ideology so anathema to American capitalists. When you read that Sanders is a democratic socialist, picture America’s Social Security program and Western Europe, not the Soviet Union under Joseph Stalin.
Sanders wants to allocate more tax revenue to infrastructure, change America’s healthcare system from private-insurance-company-fattening Obamacare to a “Medicare for all” single-payer plan, boost Social Security and other entitlement programs, raise the minimum wage to $15 per hour, provide free public college, and reverse global trade policies like NAFTA to bring jobs back to the United States.
To pay for these plans, he would enact a new 6.2% employer-side payroll tax and a new 2.2% broad-based income tax. He would prevent US corporations from shifting profits overseas to avoid paying US income taxes (inversions), create a progressive estate tax on inheritance above $3.5M, raise taxes on businesses, and tax Wall Street speculation at a rate of 0.5% per stock trade, 0.1% per bond trade, and 0.005% per derivative trade. Thus a trade of $1,000 in stocks would be subject to a tax of $5. A trade of $1,000 in swaps or other derivatives would be subject to a tax of five cents.
The Sanders income tax plan would consist of nine brackets, up from the current seven. They would range from 12.2% income tax and 2.2% capital gains and dividends tax on single filers earning up to $9,275 or married filers earning up to $18,550, to 54.2% income tax and capital gains tax on single or married filers earning $10M and up. Median household income in America is $52,000. That household would pay 27.2% income tax and 17.2% capital gains tax under Sanders.
Marketing tip for Bernie: Drop the decimals.
To avoid another subprime mortgage crisis, Sanders would reinstate the Glass-Steagall protections that were repealed during the Bill Clinton administration, and break up banks that are too big to fail. His speculation tax would also reduce the amount of bank speculation, which can destabilize financial markets.
Donald Trump wants to boost individual incomes by cutting taxes and quadrupling the standard deduction. No family would pay an estate tax, regardless of estate size. Single people earning less than $25,000 per year and couples earning less than $50,000 would pay no income tax, removing 75 million households (more than half) from the tax rolls. In his inimitable phrasing, they would instead receive a one-page form to send the IRS reading, “I win.” Everyone paying would do so on a simpler three-bracket system instead of the current seven:
10% for single filers earning $25,001-50,000; married filers earning $50,001-100,000
20% for single filers earning $50,001-150,000; married filers earning $100,001-300,000
25% for single filers earning $150,001 and up; married filers earning $300,001 and up
People paying 20% and 25% would also be subject to a 15% and 20% long-term capital gains and dividends tax, respectively. The 10% bracket people would not.
No business of any size would pay more than 15% of its income in taxes. Trump says this would automatically stop inversions by making America’s tax rate one of the best in the world.
His plan would increase take-home pay for the top 20% of earners by 9.5%, and for the middle class by 4.9%.
He wants to bring jobs back to America not by repealing trade agreements, but by taxing imports, which would raise their market prices, making products manufactured in the United States more competitive and enabling companies to afford American labor again.
He wants to repeal Obamacare, which he called a disaster on 60 Minutes because its costs keep rising “and deductibles are through the roof. You have to be hit by a tractor, literally, to use it, because the deductibles are so high. It’s virtually useless.” He wants a national private insurance market and advocates health savings accounts, but added on 60 Minutes that everybody must be covered. “I am going to take care of everybody. I don’t care if it costs me votes or not. Everybody’s going to be taken care of much better than they’re taken care of now.”
Ted Cruz wants to create almost 5 million jobs with a 10% flat tax that can be filed easily on a postcard or a phone app. All wages, capital gains, dividends, and business income would fall under the 10% rate. Families of four would pay nothing on the first $36,000 of income. However, Cruz would also impose a value-added tax (VAT), or consumption tax. It differs from a sales tax in that taxes are ultimately calculated on the difference between the seller-purchased price and the resale price. The government collects all tax on the sale, but later refunds the tax difference to sellers.
Factoring this in, the Cruz 10% flat tax would become more like a 16% flat tax, and would show up in many places. A $250,000 home purchase, for instance, would result in paying a $40,000 VAT. A $20,000 car would disgorge a $3,200 VAT. Oddly for Cruz, a supposedly ultra-conservative candidate, an American VAT has been a liberal dream for decades.
Cruz wants to repeal Obamacare and replace it with a national private insurance market, delink health insurance from employment, and promote health savings accounts. He would also boost the annual contribution limit for IRAs and other savings vehicles to $25,000.
To boost business growth, he would roll back EPA regulations, approve more fossil fuel activity including the Keystone Pipeline, and oppose any internet sales tax.
Marco Rubio wants to repeal Obamacare and replace it with a national private insurance market, a system of tax breaks for individuals similar to what businesses enjoy, and a turn toward health savings accounts.
His tax plan would reduce business taxes to 25% and eliminate the estate tax. He would provide a $2,500 per child tax credit. He would consolidate the seven income-tax brackets to two:
15% for single filers earning up to $75,000; married filers earning up to $150,000
35% for single filers earning $75,001 and up; married filers earning $150,001 and up
To create jobs, he wants to keep fossil fuel use at the forefront of the American economy. He would roll back EPA regulations and allow states to oversee coal mining and oil extraction on federal lands.
Of these five platforms, I’m most interested in the ones put forth by the two farthest outlying candidates: Sanders and Trump.
Clinton’s plan isn’t much different from the status quo, by design. She’s trying to appeal to supporters of President Obama by offering a third Obama term, easy to do since she served in the Obama administration. If you want to know how life would be under another Clinton administration, just look around: same economy, same foreign policy, Hillary under investigation, etc.
Cruz and Rubio offer proposals similar to one another’s that include a continued focus on fossil fuels, tax plans that even out to minor changes in overall burden, and a repealing of Obamacare with no compelling replacement. This latter point is an enormous economic problem. The cost of healthcare in America must be reined in. Under a private insurance marketplace, it spun out of control, yet Cruz and Rubio suggest replacing private-insurance-dependent Obamacare with another private-insurance marketplace. Pretty uncreative.
Forced to rank Cruz and Rubio financially, I would say Rubio has the better tax plan. Cruz’s VAT is a big problem, and his hiding behind the 10% flat tax smoke screen while proposing a hidden way to actually collect a lot more than that is troubling. It would be easier to respect him simply explaining why the 16% rate applied everywhere is, in his view, good for the economy. He doesn’t, though. Instead, he keeps trumpeting a 10% flat tax proposal that doesn’t exist once the fine print is factored in.
I reiterate: None of the establishment trio are interesting. We can dismiss Clinton, Cruz, and Rubio with a collective eye roll and shrug. None of their proposals are groundbreaking, and they’d be sure to deliver even less impact once these insiders got into Washington and played the usual games with the usual interest groups.
Nope, all the action is happening on the margins of this election, with Bernie “Give It All Away” Sanders and Donald “Flip ‘Em The Bird” Trump. I admit to loving this development. At long last, we have something worth paying attention to in the usually pre-packaged inertia of national politics. The left is so fed up with its bought-off puppets that it’s finally going all the way to the democratic socialist. The right is so fed up with its bought-off puppets that it’s finally going all the way to a wall-building, trade-warfare-loving trash talker. Which of these two peripheral world views would be better for the economy?
The Tax Foundation, an independent tax policy research organization established in 1937, estimates that Sanders’s plan would raise taxes by $13.6T over the next decade on a static basis but only $9.8T when accounting for the lower economic output that would result from enacting his policies, eliminate 6 million jobs, reduce overall wages by 12.8%, and shrink GDP by 9.5%.
An identical analysis by the Tax Foundation of Trump’s plan estimates it would reduce taxes by $12T over the next decade on a static basis but only $10.1T when accounting for economic growth that would result from increases in the supply of labor and capital due to enacting his policies, create 5 million jobs, increase wages by 6.5%, and grow GDP by 11%.
Tough decision here.
For us and other investors, it isn’t a tough decision, of course. Trump the businessman would be much better for the economy and our money than Sanders would be. For non-investors, which is the majority of the population, the choice is not as clear. What good is a stronger economy to people who struggle under low wages to pay outrageous healthcare prices and otherwise never get ahead? It’s rational for them to look at the much higher taxes Sanders wants to collect from higher-income earners and businesses and give a thumbs-up, knowing they might get healthcare, college, and a retirement plan out of the deal.
As always, then, it comes down to which side of the social economic contract you’re on. You and I are on the paying side of it. Others are on the receiving side of it. We look at Sanders/Trump and see Trump collecting $10T less from us in the decade ahead, and think, “Great!” Those in need of healthcare, college, and other support look at the comparison and see Sanders collecting an extra $10T for them from us, and think, “Great!” With the electorate so polarized, no wonder these two extreme views are getting all the attention. The Sanders/Trump contest is a retelling of a never-ending conflict: the have-nots vs the have-yachts.
Yet, there’s a way for each side to see benefit in the other extreme. There are people in every extended family who need financial support. Don’t the wealthier members of the family tree end up supporting them? Often, if not always. We don’t neglect our own when the chips are down. Isn’t the Sanders view of the nation a macrocosm of how families take care of themselves? Not exactly, but sort of.
I would personally prefer to see fewer wars in favor of single-payer healthcare. I’d like to stop jumping through private-insurance hoops and just go to the hospital when I need care. I’ve done it in Japan, and it works like a charm. Japan’s system isn’t single-payer, but it’s heavily subsidized with the government paying 70% and the patient paying 30%, and getting their own insurance for that 30% part if they want it. None of the horror stories I’ve heard about socialized medicine have been true in my experience. If you ever have a chance to discuss England’s single-payer healthcare system with one of its citizens, prepare to be regaled by how fabulous it is, and for good reason: it’s the top-ranked healthcare system in the world, and totally free at the point of care.
Trump is a hybrid on healthcare. He’s mentioned the health savings accounts and free insurance market ideas that both Cruz and Rubio like, but also said on 60 Minutes that he wants to take care of everybody, adding that he “would make a deal with existing hospitals to take care” of uninsured Americans. When pressed for how he would pay for this, Trump said, “The government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors with great companies and they can have their doctors, they can have plans, they can have everything.”
With both Sanders and Trump promising everything to everybody, no wonder they’re popular.
Of course nothing comes for free, and both Sanders and Trump have been taken to task by economists for promising more than they can deliver. In each case, the shortfall over the next decade looks to be about $15T. A lot would need to be removed from the federal budget to avoid a further explosion of the national debt. The military accounts for 54% of discretionary spending, at $600B annually on-book. Even cutting that by half would provide only a $3T savings in a decade, or just a fifth of what’s needed, and there’s more political interest in growing military spending than there is in shrinking it. This financial challenge is a big one.
One way or another, American healthcare needs genuine reform. The half-measure that is the Obamacare “disaster” Trump speaks of, and which Sanders criticizes for leaving 29 million people still uninsured, falls short of the mark. Liberals are outraged that Obama gave up on real reform at the first negotiation when he agreed to keep the profit motive in the picture. Conservatives are outraged that a Democratic president took their plan from the Heritage Foundation and made it his own. Doctors are quitting. Patients are bewildered. Only the insurance companies are happy.
The reason we need to dwell on what will happen to healthcare so much in this financial plan comparison is that it creates such a big impact on the nation’s finances. I lean toward the creation of a single-payer plan like England’s National Health Service (NHS), which has cared for every British citizen since 1948 without bankrupting the country. Sanders wants this. Trump suggests he wants to expand Medicare or something like it for those unable to afford private insurance plans in the open market he would create.
Maybe the best outcome would be a Trump/Sanders ticket. How about that? We could use Trump’s tax plan and economic reforms to get the economy going. Neither Trump nor Sanders wants to continue the worthless wars that have never been in the nation’s interest but have been very much in the interest of the MIC (military-industrial complex). Couple Trump’s economy-boosting plan with the savings achieved by ending the extremely expensive wars, and there might be enough revenue left over to pay for Sanders’s social safety-net ideas. This is the best of all worlds, thus probably out of the question, but pleasant to think about.
Sadly, no matter who ascends to the White House, it’s doubtful much significant will happen. Neither Sanders nor Trump would be likely to get their vision through the legislative process. Any of the other three candidates wouldn’t even try anything interesting — unless you consider setting up one’s own non-secure email server to handle top-secret communications to be interesting.
Later this year, we’ll compare in more detail the refined plans of the two general-election nominees.
Yours very truly,
Look insideThe Kelly Letter
You left out the only adult in the room – John Kasich! Trump is a goofball, Bernie isn’t doing the math, and Hil is over the hill (pun intended) because she has just been in the political news too long. If popular media would give Kasich as much (or even half as much) coverage as they give Trump, voters would be able to see that he is the only logical candidate on the scene.
You might be right, Mary, but he just wasn’t able to gain any traction. I focused on only the five candidates with a reasonable chance of winning their party’s nomination. I expect both Carson and Kasich to suspend fairly soon.
I thought Jeb Bush was the best-qualified, but Trump is my second choice. We need a conservative president, even if Trump isn’t a traditional one, and has no political experience.
Regarding matters over which I have more control, I’ve read most of your 3% Signal book, bought a copy, and am in the process of implementing that strategy in my Roth IRA. You are right, no one can predict the market accurately and recent history is the best guide, combined with a simple and sensible strategy. Keep up the good work!
You’re most welcome, Brian, and thank you for putting your own 3Sig strategy to work.
It will serve you well, no matter who becomes president or what other pressures push the market around. Price fluctuation is not to be feared; it’s to be used properly, and 3Sig guarantees that it will be. I wish you well with it!
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