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The Democrats, seeing their opportunity for re-election slip through
their fingers are starting to move toward an extension of the Bush tax
cuts. According to The Wall Street Journal: "Two more Senate Democrats
called for extending tax cuts for all earners—including those with the
highest incomes—in what appears to be a breakdown of the party's consensus
on the how to handle the expiration of Bush-era tax cuts."
The bulls saw a nice day slip away on Wednesday, after Fed Chairman Ben Bernanke
delivered what will be known as the "unusual uncertainty" speech. Aside from
giving Bernanke sound byte and buzzword hall of fame potential, much like Greenspan's
utterance, "irrational exuberance" did for his predecessor, Mr. Bernanke, like
Mr. Greenspan put the whole current economic picture together in one easy to
reproduce phrase.
In other words, those of us who work for a living and talk to people on a daily
basis, and who drive around looking at spotty traffic on streets and highways,
and at half empty restaurants and shopping malls with empty storefronts, aren't
alone. Bernanke actually gets it. This economy is too unpredictable to make big
bets on. And the big problem, aside from joblessness, is the uncertainty about
taxes, regulations, and the loss of entrepeneurial spirit that is being fostered
by the White House and this Congress.
That's why the timing of this development is interesting, as the Journal story
comes one day after the Bernanke comments.
So far, three Democrat senators have joined the "keep the Bush tax cuts" club,
Sen. Kent Conrad (D., N.D.), Sen. Ben Nelson (D., Neb.), and Sen. Evan Bayh (D.,
Ind.). It's no surprise that these three are saying it. After all they come from
three states that are more traditional in their values, and where people are
known to want to work for a living and prosper. According to The Journal: '"As
a general rule, you don't want to be cutting spending or raising taxes in the
midst of a downturn," Mr. Conrad said. "We know that very soon we've got to pivot
and focus on the deficit. But it probably is too soon to cut spending or raise
taxes."'
In fact, this is the first major near-crack in the Democrat anti-low tax front
as "The comments from the senators represent a departure from what appeared to
be an emerging unified Democratic stance on the Bush tax cuts, which held that
those for the wealthiest Americans should be allowed to expire." The dividing
line has been $250,000. The Democrat line has been that those who make $250k
or less can keep the tax cuts while those above it would see their taxes rise.
The problem is, and these three senators may be getting it, the jobs in small
businesses are created by those who make more than $250,000. And with new health
care mandates and rising regulation on the way, businesses aren't hiring as owners
begin to fret about their ability to have a business, much less make profits
running one.
According to The Journal: "Republicans and many business groups favor extending
all the breaks, contending that increasing tax rates will hit small businesses
hard. With U.S. employment still weak, some centrist Democrats are agreeing,
prompted to change their stance by the still-ugly economic picture. In addition
to Messrs. Conrad, Nelson and Bayh, at least half a dozen House Democrats also
have come out publicly in favor of postponing tax increases for higher earners."
There are other interesting developments inside the Democrat party. According
to The New York Times, president Obama has "destroyed" the traditional fund raising
mechanism for Democrat politicians in the state of New York.
According to The Times: "President Obama will travel to New York this month to
survey the ruins of the Democratic fundraising hierarchy he helped destroy. On
July 28, the president will attend two private dinners in Manhattan to benefit
the Democratic National Committee. He'll be guest of honor for a $30,000-a-head
event at the four-story Sullivan Street townhouse of Vogue editor Anna Wintour,
who is an outsider to the traditional fundraising firmament of Wall Street investors." The
report, in significant detail tells a tale of how Obama has systematically avoided
the private party fund raising system that has been in place for decades and
where former presidents and candidates, such as the Clintons, have raked in billions
in donations from direct donors, and those known as bundlers, people who would
collect donations from smaller donors and present them to the candidates as one
big sum.
According to the report, there was a network of wealthy individuals who would
host lavish parties at their homes where the candidates and their large donors,
many from Wall Street, would have "face time." Obama is avoiding this kind of
affair now, instead opting to attend dinners at public venues, such as the Four
Seasons Hotel in New York. And the donors are not happy. Part of the issue is
Obama's anti-Wall Street stance and the White House making sure that Mr. Obama
isn't seen as being hypocritical by on one hand slapping Wall Street and with
the other taking their money.
But this is much deeper than that. The donors aren't pleased to have lost their
status and their access. And the president doesn't seem to think he needs them,
or at least is trying quite hard to fuel that impression.
According to The Times: "Obama is in no rush to build a new establishment. Unlike
his predecessors, he is keeping his distance from Wall Street, and Wall Street,
not surprisingly, has largely soured on him and his overhaul of the financial
sector. But speaking on the condition of anonymity to explain the hard feelings
toward the president, many of his most generous donors express a more personal
grievance, as well: They have been treated like pariahs. Obama has not only denied
them government jobs, but thank-you letters and White House invites. He has not
anointed a new first couple of fundraising. (The White House press office declined
to comment about the president's attitude toward fundraisers.)"
Here is an interesting quote from The Times story: "It's important to remember
that the donor leadership is part of the grass roots," said Robert Zimmerman,
a Long Island-based bundler who was close to the Clintons and Gore. "They want
to feel connected to the mission, and they have the career experiences and perspectives
that are essential to the success of the mission."' And here's another one: '"One
thing is for sure," said one early supporter of Obama who plans to attend the
Four Seasons dinner and would not be identified speaking about the private event. "There
is going to be some frank dinner conversation."'
Conclusion
There is a deep divide forming inside the president's party. And the cracks seem
to be coming from two major directions, the inside and the outside. Because of
the president's low popularity, some in Congress are starting to distance themselves
from Mr. Obama as they ponder their own chances of being re-elected. With a Congressional
approval rating of 11%, according to a recent Gallup poll, it's hard to argue
with incumbents who are starting to think about their own future.
But more important for Mr. Obama, who is also losing the support of independents,
the swing voters who gave him money and who voted for him, is that he is losing
support from big money on Wall Street. He seems to have upset many with deep
pockets who had ideas as to what they might receive in return for their support.
It's hard to stay in office if your base walks away from you.
We'll be on Twitter
some time today before the market closes with some updated comments.
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