[Advisors are] less concerned about recession than dealing with the economic policies of a new Clinton administration. They fear that a big increase in taxes will erode equity investments, especially given the proclivity of Democrats to target equity funds for new taxes to pay for their increased spending. Eighty-one percent feel that Democrats will raise capital gains taxes, income taxes, and dividends.
In the Financial Times, left-wing Representative Barney Frank gives them plenty of reason to be afraid. Rep. Frank wants to turn back the clock on 20 years of strong economic growth and wants to increase the regulatory strictures that threaten the future of the US economy:
Democrats believe that government’s role as regulator is essential in maintaining confidence in the integrity and fairness of markets, and we believe that economic growth alone is not enough to reverse unacceptable levels of income inequality. In the wake of the subprime mortgage crisis, credit markets round the world contracted sharply in response to concerns among market participants about the value of exotic and opaque securities being offered in largely unregulated secondary markets. This staggering implosion and its damaging and widespread reverberations make it clear that a mature capitalist economy is as likely to suffer from too little regulation as from too much.
The reality is that the US economy is highly over-regulated, especially in the wake of Sarbanes-Oxley, which created massive new regulatory structures without much consideration of their impacts. This is a global economy. Jobs which could be created here can just as easily be created in London, Dubai or Hong Kong. The more we add to the regulatory burden, the more incentives there are for companies to create jobs elsewhere. The more regulatory burdens put on small businesses, the lower job growth. The US has the second-highest corporate tax rate in the industrialized world—even socialist Sweden does not tax corporations at the rates we do.
With increasing unemployment and a falling dollar, the very last thing that government should be doing is adding more anchors to economic growth. There is an inverse relationship between burdensome regulation and economic growth. It is somewhat ironic that just as a center-right movement towards more economic freedom seems to be sweeping Europe that opportunistic politicians in the United States would be charting a retrograde course.
There are two major burdens to America’s future: one is regulation, and the other is a failing educational system. Politicians like Rep. Frank are making these problems even worse. It’s hardly surprising why financial advisors would fear a Democratic sweep in Washington: if the Democrats embraced such bad economic advice, our current economic problems could easily be just the beginning of the story.