Conservative Press 04julsep

Previous Weeks' Conservative Press

From July 5 through September, 2004

     This review of the conservative press was started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.

     In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:

     So, grab your barf bag and read on!

     (Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)

The week of...

July 5

Week of July 5

     Everyone, especially liberals, should read Barron’s. It’s the premier conservative financial publication for serious investors, so it actually tells the truth to investors when analyzing tax policy.

From Barron’s, July 5, 2004.


A Surprise Tax Cut

Restoring sales tax deductibility could help Bush


A SLEEPER PROVISION in the Homeland Investment Act, a major tax bill awaiting action by a Congressional conference committee, could go a long way toward sewing up Florida this November for President George Bush. It could also give wealthy folks in his home state of Texas reason to rejoice.

The provision would allow taxpayers to deduct state sales taxes on their federal income-tax returns. Sales taxes were deductible until the passage of Ronald Reagan's tax reform act in 1986. That change has infuriated residents in states that have sales tax but no income tax—because people in states with state income taxes are still allowed to deduct those levies….

Florida once again is expected to be a swing state in November, and a cut in taxes has never hurt in persuading the undecided. Reinstating the sales tax deduction would especially help wealthier people who itemize their deductions. According to the Joint Tax Committee, the bill would cost the Treasury over $3 billion in revenues over 10 years. But the provision would sunset in two years without action to keep it alive.

The plan has champions of the progressive tax system up in arms. Two top executives at Tax Analysts, the company that publishes the indispensable Tax Notes, claim that it's a giveaway to the rich. Christopher Bergin, CEO, and David Brunori, executive vice president, opined to us recently that the GOP was dismantling Reagan's legacy before he was even in the grave. Tennessee Sen. Bill Frist, the majority leader, is one of the prime sponsors of the provision….

     It’s the usual cast of players: Republicans manipulating the tax system under the radar of the mainstream media, and giving tax breaks to the wealthy—and at the same time increasing the chances of swaying an election by buying off voters.

     On the other side you have the progressives who try to expose the “giveaway to the rich.” Of course, the mainstream media isn’t interested in such boring details. And, incidentally, note that the new tax cut for the rich by today’s unprincipled Republicans is a reversal of part of “Ronald Reagan's tax reform act in 1986.”

      “THE PAST FEW YEARS have been especially kind for Corporate America.” Why?

     The two excerpts below from the same issue of Business Week explain the zero-sum nature of wealth: the less money workers make, the more money investors and top corporate executives make.

From Business Week, July 5, 2004.


Why The Economy Won't Boost Bush

Statistics show recovery, but most voters aren't sharing in it

By Robert Kuttner

…For starters, the job growth isn't translating into broad-based wage growth. Even after three months of good job creation, there is little pressure to raise wages. That's why the May core inflation rate—without volatile indicators like energy and food—is just 0.2%. There's no wage pressure….

ONE STARTLING INDICATOR of the recovery's limited economic impact is the proportion of economic growth going to profits and to wages. Corporate profits have increased by more than 50% during this recovery, compared with just 0.8% in wage increases, according to Economic Policy Institute calculations based on Commerce Dept. statistics. In the eight previous recoveries, wages increased an average of 12.3%, and profits about 35%.

This recovery's unprecedented skew explains the stock market rebound. It also explains why the average voter isn't sharing the prosperity and lacks confidence in the President despite the relatively good overall statistics. To add insult to injury, the typical consumer is facing higher gas prices and rising health-insurance costs….

U.S.: Is The Wealth Effect Endangered Once Again?

No. Any bumps ahead should be mild for companies and consumers

What a roller-coaster ride it has been. Over the past five years, U.S. consumers and businesses made tons of money, then lost a sizable chunk of it, then slowly reclaimed their wealth stakes. For businesses, the rebuilding was helped by cost-cutting and debt refinancing. For consumers, rising home values and stock prices boosted net worth to new highs. Propelling most of this balance-sheet repair was the presence of the most accommodative financial conditions in decades….

THE PAST FEW YEARS have been especially kind for Corporate America. Profits are rising at a double-digit pace, while tax-law changes have created generous depreciation allowances. Internally generated U.S. funds came in at an annual rate of nearly $1 trillion in the first quarter alone….

FOR CONSUMERS, who hold the bulk of the nation's wealth (chart), greater prosperity has come from the rebound on Wall Street and the resilience in housing. Little in the outlook should change those uptrends.

Household direct holdings of corporate equities jumped 28% in the year ended in the first quarter, and mutual funds surged 39%. Owners' equity in real estate—the value of homes minus the mortgages outstanding—rose 8.2%. Stock portfolios are still down $3.7 trillion from their peak of early 2000, but that shortfall has been partially offset by the $2.3 trillion gain in real estate holdings. Moreover, with profits growth still looking good, equity prices have the potential to keep growing….

     So, “The Wealth Effect (is not) Endangered Once Again.” For rich investors, of course. As you read the above, remember that it is the wealthy who own any significant amounts of real estate or securities.

     And as usual, the reason the rich are doing so well is that the poor and middle-class are losing their standard of living.

     For an extended discussion of the zero-sum nature of wealth, see Wealth is a Zero-Sum Game.

     The following is just another in the endless series of articles that describe the skullduggery on Wall Street. And it reaffirms the wisdom of not privatizing Social Security.

From Forbes, July 5, 2004.

Hedge Hell

Two slick funds promised dozens of executives a way to get off the market roller coaster. Instead they lost hundreds of millions of dollars.

"Even the biggest fish in the pond can get screwed," says plaintiff Philip McKee, the former chief executive of TurboChef Technologies. "If they can do it to us, they can do it to anyone." Among the alleged screwees:Yahoo cofounder Jerry Yang (who put in $3 million); Bruce Toll, cofounder of homebuilder Toll Brothers ($1 million); former Ask Jeeves boss Roger Strauch ($1 million); and former Omnipoint chairman Douglas Smith ($3.7 million).

In 1997 and 1998 some 170 highly sophisticated investors, many of them techies flush with soaring stock options, put $286 million in stock into two so-called exchange funds. The funds are designed to let execs diversify beyond their own company stock--and dump insider shares without full disclosure or having to pay taxes on any gains. But the clients lost hundreds of millions of dollars, the suits claim,when the two funds bet wrong as tech stocks rocketed up in 1999, then bet wrong again when the market fell….

     If "Even the biggest fish in the pond can get screwed," surely unsophisticated investors trying to place their own Social Security investment funds with our modern securities industry would be even more vulnerable to screwing.

     And what would our government do then, when many people lose their retirements to unscrupulous stock brokers? Given our current ethical environment, they simply would be on their own. After all, that’s the nature of capitalism, as modern conservatives have defined it.

     As you read the following excerpt, remember that our pharmaceutical industry is one of the most profitable in the U.S. But their investors and top corporate executives just can’t get enough.

From The Wall Street Journal, July 6, 2004.

In New Trade Pacts, U.S. Seeks
To Limit Reach of Generic Drugs

As public-health groups urge wider use of generic drugs to lower the cost of treating AIDS and other diseases in developing countries, U.S. trade negotiators—prodded by the drug industry—are taking the opposite stance in new trade pacts, seeking to strengthen protections for costlier brand-name drugs.

In a series of complex, wide-ranging trade talks with other nations—which are intended to govern everything from crops and clothes to music and video discs—the U.S. aims to defend U.S. companies from competition from foreign copycats. But public-interest health groups say that when it comes to critical drugs, U.S. efforts are keeping prices too high for the poor.

"Medicines are treated like a commodity, the same as Barbie Dolls or computer software," says Rachel Cohen of Doctors Without Borders, a nonprofit emergency-relief organization. Essential medicines, she says, should not be treated simply as products needing protection or else "poor people pay the price."…

"There's a wide consensus by the United States and others that essential drugs must be made available at low cost," Dr. Feachem says. But in Jordan, he says, which recently signed a trade agreement with the U.S., AIDS drugs purchased with Global Fund monies cost an average of $7,000 a year per patient, compared with the average $250 to $400 paid in other countries supported by Global Fund grants….

     So much for the old argument that the free market, without any governmental oversight, will solve all our problems.

     Banking is another of our most profitable industries. It also sees no moral restrictions on their deliberate profiteering by taking ruthless advantage of our poorest and most defenseless citizens.

From The Wall Street Journal, July 6, 2004.

Growing Profit Source for Banks:
Fees From Riskiest Card Holders

Late Payers and Big Borrowers
Are Becoming Cash Cows;

…For consumers who pay off their credit-card balances each month, shop aggressively for interest rates as low as 0%, and take advantage of generous credit-card rewards programs, consumer credit has never been cheaper. But for others like Ms. Reid, who went into debt so she could move to a better job in Florida from South Carolina, the trend is in the other direction.

Card users, consumer advocates and some industry experts complain that banks are attempting to squeeze more and more revenue from consumers struggling to make ends meet. Instead of cutting these people off as bad credit risks, banks are letting them spend—and then hitting them with larger and larger penalties for running up their credit, going over their credit limits, paying late and getting cash advances from their credit cards. The fees are also piling up for bounced checks and overdrawn accounts….

For now, the only way for consumers to know what they're getting into is to plow through the disclosure materials they receive when they open bank accounts or get new credit cards. Most never do…

     So, who gets the best deals our public-spirited corporate executives have to offer? The wealthy, the ones who need them least.

     Who do they always screw? The poor and the powerless.



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