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Election discourse skirting talk of national sales tax, economist Sherry Cooper says


North America will lead the global economy this year and in 2013, with the United States outperforming all other countries by 2.4 percent and 2.7, respectively, Sherry Cooper predicts.

The executive vice president and chief economist for BMO Financial Group spoke to a Harris Bank audience at the Kravis Center last week. She also rang in on Florida economy, the real estate market, job growth, dividend income, taxes, oil prices, the upcoming presidential election and more.

"In Canada, we call an election and six weeks later people vote," said Cooper, an American who moved to Canada for a job opportunity in 1983. "You could almost miss (the election) if you were away on vacation."

Americans, however, are steeped in election politics -- and at the core of all presidential elections is the economy. In the United States, Cooper said, "There is no possible way to eliminate the debt without cuts in spending and increased tax revenues."

One way other countries around the world have raised revenue has been to establish a national sales tax, she said.

"The U.S. is the only country in the developed world that does not have a national sales tax," said Cooper, who worked with the Federal Reserve Board and the Federal National Mortgage Association before relocating to Canada. "A 10 percent national sales tax in this country would eliminate three-quarters of the structural deficit," she said.

But that's not part of the current dialogue, Cooper said, because the Tea Party doesn't want "any tax increases at all, the Republicans have been forced into that bucket and the Democrats don't raise it because it would be unbelievably unpopular."

Cooper, winner of the Lawrence Klein Award for U.S. forecasting accuracy in 2010, made many other predictions, including:

Real estate: Baby Boomers' children will be first-time home buyers. Between 1946 and 1966, 78 million boomers were born, there are now 96 million boomer kids and 30 million of them are ages 25 to 35, the prime household motivation years. Home prices are at historic lows as are interest rates.

Investment psychology is still deflationary and they feel no pressure to buy now, but as soon as interest rates begin to edge up and home prices being to improve, this pent-up demand will surface.

Bush-era tax cuts: If all the tax cuts expire, the marginal income tax rate will increase for everyone. But more importantly, from a stock market perspective, the dividend tax rate will rise as will that of capital gains, and dividend taxation will increase.

Whether a Democrat or Republican is elected, however, increases in dividend tax rates and capital gains tax rates are unlikely, because it would have such a negative effect on capital formation and the general level of productively and economic wealth.

Stocks: The stock market rally this year is anticipatory of the current economic rebound and reflects relative value as well. With bond yields low, as the economy and earnings continue to grow, that growth will have a positive effect on stocks. Currently, it remains a stock pickers' market.

Since the October market lows, all stock indices are up more than 20 percent. Dividends matter in this low-inflation, low-interest-rate environment, particularly because of their preferential tax treatment.

The bottom line: Opportunities for growth do exist, Cooper said. The United States' improved competitive position along with the manufacturing renaissance has finally triggered a self-reaffirming cycle, and businesses are hiring again. That means people will spend again, confidence will improve and housing will come out of the doldrums.

"While I didn't agree with everything," said Douglas Rill of the Palm Beach office of Century 21 America's Choice, "she takes complex issues and makes them understandable."

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