Tuesday, June 24, 2008

Obama Talks Business in Fortune

A very good read.
Obama sees credit card debt as big trouble:
The next potential implosion, he says, is credit card debt, and Obama has proposed a consumer bill of rights that restricts card companies' ability to raise rates and creates a federal credit-card rating system.

"There's a reason why the business community in Chicago as a whole has been very supportive of me," he says. "They know I am a pro-growth guy, and I'm a pro-market guy. And I always have been. What I do get frustrated with is an economy that is out of balance, that rewards a very few - with rewards that are all out of proportion to their actual success - while ordinary, hardworking Americans continue to get squeezed. Over the last decade or so, this economy grew substantially, and more than half of the total growth was captured by the top 1%."

He didn't sell us hardworking saps out and that's good for business.
Toward the business community, he will build on a message of "tough love" that he has delivered since he landed in Detroit a year ago to tell the auto industry he would impose strict emissions standards, but in return help them with crippling health-care costs. In the coming months voters will hear that a decade-long middle-class squeeze hurts business, because it "reduces demand for the stuff that companies are selling," says his economic advisor, Austan Goolsbee. Therefore, he argues, business should support Obama's plan to shift the tax burden toward the wealthy and raise the federal minimum wage to $9.50 over two years (under current law it goes to $6.55 in July).

As Obama says on the campaign trail, "In America, prosperity has always risen from the bottom up." Likewise, he argues, increased regulatory oversight, capital requirements, and transparency standards will help capital markets by injecting stability. More federal spending on education and basic science will improve workforce quality.

"I still believe that the business of America is business," Obama told Fortune. "But what I also think is that with all that power and talent, and all those resources at their disposal, comes some responsibilities - to not game the system, to not oppose increased transparency in the marketplace, to not oppose fiscally prudent measures to balance our budget."

He is frequently on the phone with billionaire CEO Warren Buffett ("one of my favorite people," says Obama, "he's just completely down-to-earth and as smart as they come"), a critic of the financial industry and of tax breaks for the rich who also happens to understand capital markets better than just about anyone.

Obama calls on Apple's Steve Jobs to help him "think about how to be successful and nimble in the current global environment."

Advice also comes from Wall Street veterans like J.P. Morgan Chase CEO Jamie Dimon and Centerbridge Partners founder Mark Gallogly - as well as longtime Chicago friends Penny Pritzker of Hyatt (who runs his campaign finances), Ariel Capital's John Rogers, and investor James S. Crown.

the essence of his plan:
a) more government spending: $65 billion a year for universal health insurance, $15 billion a year on alternative energy, $20 billion to help homeowners avoid default, $60 billion to bolster the nation's infrastructure, $10 billion annually to give students college tuition in exchange for public service, and on and on;

and (b) shifting the tax burden upward: ending the Bush tax cuts on families making more than $250,000 and raising payroll taxes on those same higher-income earners (the latter meant to bolster Social Security without cutting benefits or raising the retirement age). Middle-class earners would receive tax cuts, and low-income seniors would pay no income tax. Combined with a tax rebate as part of this new $50 billion stimulus plan, he argues, putting more money in the hands of middle-class consumers will help them cope with the income squeeze as well as rising energy prices.

Obama also wants to raise a range of other taxes on business and investment. He would increase the 15% capital gains tax rate - probably to 25%, according to advisors, though he excludes small businesses and new ventures from the tax altogether. He would raise the dividends tax, reinstate a 45% tax on estates worth more than $3.5 million, and close $1.3 trillion in "corporate tax loopholes." The thinking behind those tax hikes comes in part from Goolsbee, a University of Chicago economist who has studied behavioral response to economic policies. Goolsbee believes the Republican argument that lower tax rates - by spurring investment and productivity - end up generating more revenue than they lose is overblown. (He notes that Obama wants to go back to the rates of the '90s, when the economy was booming.) Instead, he believes the tax code should be used to ease financial pressures on the middle class.