We are joined today by Director of Zacks Equity Research Dirk van Dijk, CFA, who was kind enough to take some time out of his busy day to speak with us.
We’re doing a rather last-minute interview here for publication Thursday morning (the 28th). What is on your mind to talk about?
Well, with the Democratic National Convention underway and therefore political season in full swing, lots of claims and counter claims will be made about taxes. Amid all the spin, careful analysis often gets lost. The Tax Policy Center (TPC), a non-partisan group, sat down with the top economic advisors for both campaigns and attempted to sort out just what the implications are from the proposals of each side would be.
And what is the verdict?
Well first of all, I strongly urge all readers who care about the long-term fiscal health of the U.S. Government to read the report.
But to my mind, given the massive size of the deficit this year and projected for next year, both McCain and Obama are being too “generous.” Still, the charge of “tax and spend” is absurd if applied to either candidate, while the charge of “borrow and spend” is valid for both of them.
There are real differences in the distribution of the tax cuts. The bottom 90% will do much better under Obama, while the top 1% will see even more tax cuts under McCain. This will have many repercussions for the types of firms that will do well under each administration.
Where would investors be most likely to see the difference?
Perhaps this would be most clearly seen in Retail. A McCain administration would represent the continued bifurcation of the U.S. economy. High end retailers like Neiman Marcus or Tiffany’s (TIF) would do very well under such a scenario. Since the working class has to continue to shop somewhere, it would also help the discounters like Wal-Mart (WMT).
Mid-priced retailers like J.C. Penney (JCP) and Kohl’s (KSS) would be hurt as what is left of the middle class trades down to shop at places like Wal-Mart. Casual dinning firms like Applebee’s would be hurt, but high-end steakhouses like Morton’s (MRT) would do well.
What sort of “back-of-the-envelope” calculations should investors come away with?
An Obama administration would try to shore up the incomes of those earning under $150,000 per year. There are many headwinds that exist, so it is unclear if it would succeed, but it would not be actively pushing the division in the after tax incomes between the top and the bottom of the income scale the way the Bush administration has, and McCain promises to continue.
Dirk van Dijk, CFA is the Director of Zacks Equity Research.
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