Futures are ~75bps higher this morning as the USD trades ~65bps lower against a basket of global currencies. In appears that the reflation trade – at least in part – is back again: USD up, stocks down…USD down, stocks up. At the same time, two-year Treasury yields continue to make record lows as bonds are bid higher. The ten-year yield remains just under 2.5%. Oil is up 1% and Gold is up 1.2% to set another non-inflation-adjusted (i.e. 1973) high. Overseas, Moody’s is considering another downgrade of
’s debt. In Asia, Ireland remains closed for holidays but the Bank of Japan unveiled a $418 billion easing program and cut rates to near zero. China ’s RBA surprisingly left rates unchanged when a rate hike was expected. Further, both Australia South Korea and announced plans to cap their surging currencies. On the aggregate, one would think that the global currency “weakening” announced all over the world would actually rally the USD, but in fact the USD’s downward trend ahead of looming QE2 seems quite secure. Someone on TV said the phrase “global currency war,” which certainly feels appropriate today. Is everyone simply rushing to devalue their currencies in a mad dash to ensure the attractiveness of its exports? In the end, isn’t this a bit of a zero-sum game? Looking ahead, YUM reports after the bell today. COST, MON, STZ, MAR, and FDO report tomorrow. PEP, AA, and MU report Thursday and we’ll also get September retail sales data that day. Friday is the big September payroll number. Also note that the IMF/World Bank meets October 8-10 in Brazil . ISM Non-manufacturing data due at 10am today. Article in the Financial Times this morning discusses Obama’s failure to repeal the Bush tax cuts. (For more tax talk, see quote section below.) Washington, DC
Regarding global monetary policy, here’s this morning’s Hedgeye note:
GYMB higher on news it has retained GS in a bid to go private. JEFF ups SWIR, WAG. TLB -10% on lowered forward guidance. WFR sells power plant to First Reserve. BofAMLCO ups SPWRA. BCAP ups CIG. DBAB ups PCG. GSCO ups AMG, ETH, TX, CNS. UBSS ups EGP. BofAMLCO cuts CVA. BCAP cuts CL, KSP. CSFB cuts RYL. DBAB cuts BTU. GSCO cuts BKS, BLK, EDU, HD, PZN. OPCO cuts CXDC. BARD cuts ICLR. NY Times cautious on MON.
S&P 500 PreMarket 8:30am (last/% change prior close/volume):
Today’s Trivia: Male students at BYU need a doctor’s note to do…what?
Yesterday’s Question: Name the only river that flows both north and south of the equator (i.e. it crosses the equator twice)?
Yesterday's Answer: The
is the only river that flows both north and south of the equator. Congo
The Bill Gates Income Tax
's most famous billionaires are really worried about their state's finances, they'd write personal checks to the government and leave everyone else alone. Washington
It's one thing to believe in bad policy. It's quite another to push it on others. But Mr. Gates Sr.—an accomplished lawyer, now retired—and his illustrious son are now trying to have their way with the people of the state of
Mr. Gates Sr. has personally contributed $500,000 to promote a statewide proposition on
Along with creating a new income tax on high-income earners, Initiative 1098 would also reduce property, business and occupation taxes. But raising the income tax is the real issue. Doing so would put the state's economy at risk.
To imagine what such a large soak-the-rich income tax would do to
In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5%.
It's striking how the high-tax states have underperformed relative to those with no income tax. Especially noteworthy is how well
Over the past 50 years, 11 states have introduced state income taxes exactly as Messrs. Gates and their allies are proposing—and the consequences have been devastating.
The 11 states where income taxes were adopted over the past 50 years are: Connecticut (1991), New Jersey (1976), Ohio (1971), Rhode Island (1971), Pennsylvania (1971), Maine (1969), Illinois (1969), Nebraska (1967), Michigan (1967), Indiana (1963) and West Virginia (1961).
Each and every state that introduced an income tax saw its share of total
The states that have high income tax rates or have adopted a state income tax over the past 50 years haven't even gotten the money they hoped for. They haven't avoided budget crises, nor have they provided better lives for the poor. The ongoing financial travails of
Over the past decade, the nine states with the highest tax rates have experienced tax revenue growth of 74%—a full 22% less than the states with no income tax.
What's true for those states with the highest tax rates is doubly true for the 11 states that have instituted state income taxes over the past half-century. They too have lost huge sums of tax revenue.
A final thought for those who want to punish the rich for their success: As the nearby chart shows, those states with the highest tax rates, and those states that have introduced state income taxes, have seen standards of living (personal income per capita) substantially underperform compared to their no-tax counterparts.
If Mr. Gates Sr. and his son feel so strongly about taxing the rich, they should simply give the state a chunk of their own money and be done with it. Leave the rest of
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How