P(tax hike / McCain) = 0.74

There must surely be some investment vehicle for which expectations for future tax rates are influencing current decisions? That seems like much better place to look than Intrade.

Does anyone know whether there are serious hedging products that explcitly use tax rates as conditionals?

I disagree with the fundamental premise of both Mankiw’s analysis and what I’ve read here.

The current tax rates are set to expire in 2010–the year that midterm congressional elections will be held. If McCain is President, he will hold the whip hand–he will be able to say that the “do-nothing Dem congress” raised taxes by their inaction.

I’d be very surprised if Congress didn’t roll over to some form of extension of the current rates.

Personally, I’d prefer a radical revision and simplification, 1985-style, in which we finally, definitively, get rid of relics like the AMT. I think that a simpler system in which we got rid of most exemptions and tax shelters, and at the same time raised the floor at which people are taxed (some version of MaxTax perhaps) could provide the basis of a “grand bargain”.

But perhaps that’s too much to ask for.

I saw this on Mankiw’s blog as well, but you don’t need to apply the laws of probability to realize McCain will likely increase taxes. If he is serious about balancing the budget (which he claims he is), and if his only plan for doing so is to stop pork barrel spending (earmarks), taxes are going to have to increase. Cutting all of the pork won’t do it, especially if we stay in Iraq. The only difference between the McCain increases and Obama increases are where the marginal rate changes will be concentrated.

McCain claims to want to balance the budget, is proposing increases in spending, and to extend Bush’s tax cuts. He voted against them in 2001 because they increased the deficit, and his conversion only happened when he was running for president He knew the congress would be controlled by Democrats and would resist so he could blame them if they were not extended. The current deficit is $438bn. I think looking at these facts it is naive to believe he really wants them extended.

Not only does McCain want to keep us in Iraq indefinitely, but he also wants to “intercede” in Iran, Jordan, Syria, North Korea and Venezuela. If our stay in Iraq has put this much of a strain on our economy, what do we think will happen if we are in five additional countries? There cannot be tax cuts under McCain, and in my opinion will most likely have to be tax increases to support his imperialistic ideas. This makes his claim to be a “fiscal conservative” a bald faced lie.

Don’t get me wrong here, because I think Obama’s plans for “socialized” healthcare will be at least as bad, if not worse. He wants to look at Sweden as the template, but there are a few problems that he may not be taking into account. First, scale, Sweden has a population of 10 million and dropping, whereas, the United States has a DECLARED population of a little over 300 million (with approximately 20 to 60 million undeclared on top of that), at least 30 times larger than Sweden and growing. Second, Sweden has a minimum wage of approximately $25.00 per hour, whereas, the minimum wage in the United States will be $7.25 an hour when the government gets around to implement it. Third, After all is said and done the tax rate in Sweden is close to 72%. Not even the wealthiest Americans pay that much (though when you include property tax and sales tax, the tax rate for most probably averages around 27%). In Sweden, you are looking at 173,732 square miles with the largest city including its entire metro area being 2 million people or close to 1/5th of the total population, in the United States you have 3,794,066 square miles and a population almost TWICE Sweden’s alone at 19,750,000 people in the Metropolitan area. This means that America’s largest city is only 1/18th of the total population (if you take into account the undeclared, which for this purpose we have to, since they would be covered as well). Then you have to look at the distance between the RURAL residents in the United States and a clinic or hospital at which they could get treatment, which in some cases is in excess of 50 miles. Just on the SCALE of the issue, there isn’t any conceivable way for a “Swedish style” system to work in the United States unless the income tax for ALL citizens was in excess of 70% FOR JUST THE HEALTH PLAN.

My next point is how this would then affect the “American Dream”. If a two earner family, making a total of $50,000 a year ($25,000 apiece) were to be taxed at 70%, their after tax income would be $15,000 a year collectively. If this family owns a house with a mortgage (averaged at $1,000 a month), this would leave $3000 a year, or approximately $250 a month to live on. Taking into account even just ONE car payment, auto insurance, gas, utilities and other unforeseen expenses, this family is going deeper and deeper into debt every month. As a single male, my living expenses per month, NOT INCLUDING health care are in excess of $1000, and that doesn’t include my rent, nor gas for my car. For just me, I would be going in debt more than $750 per month to survive. What kind of “American Dream” would this be? Considering, only about 40% of Americans make more than $50,000 per year, this is where we are headed. Admittedly, I have rounded some number (mortgage payment, income, etc.) so that it will make it relatively simple to do your own math.

For those of you out there making over $100,000 per year, you will continue to be able to sustain your life and probably not go deeply into debt, however, you may find the need to cut corners here and there as the government takes $70,000 from you per year (at a 70% tax rate and an income of $100,000). That $30,000 will not stretch anywhere near as far as the $61,000 (at the current highest tax bracket, assuming no tax shelters or charitable donations, etc.)

I know I am just throwing numbers out there, however, they are numbers that you can find for yourself if you do your research, so this is what we have to look forward to if Obama gets his way. By the way, I haven’t included any property or sales taxes in my figuring for the United States, because the majority of those are LOCAL, not FEDERAL taxes.

In my humble opinion, we are up the “brown river” with no mode of locomotion with either of the two major candidates that have been put forth this year.