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Gingrich Shares Financial Insights During FSC Conference
FSC’s National Education & Business Conference (NEBC) in Atlanta, in October 2007, brought together former U.S. House Speaker Newt Gingrich and former U.S. Representative Harold Ford, Jr. in a lively discussion on various topics that will directly impact the future for financial advisors and their clients. The panel was moderated by Fred Barnes, executive editor of The Weekly Standard.
Gingrich and Ford, Jr. offered their insights on economic, political and social developments anticipated for 2008. The trends outlined below are anticipated to affect the financial decisions, perceptions and conditions of investors and, consequently, the manner in which you operate your business as an independent financial advisor.
U.S. Economy
In assessing the overall current state of the U.S. economy, Mr. Gingrich spoke in the context of today’s global economy, which impacts the financial condition of Americans more so than ever before.
“The historian’s answer to the current state of our economy, taking into account our national debt, is that we’re in relatively good shape,” Gingrich explained. “Our economy is still growing faster than our debt, and we are still the most powerful economy in the world. To give you a sense of scale, the American health system is the same size as the Chinese economy.”
“In 1913, we were 31% of the world’s economic activity,” he continued. “We peaked in 1945 at a little bit over 50%, but by 1980 had declined to only 22%. Since then, however, with tax cuts, deregulation and an explosion of entrepreneurial energy, two years ago we were back up to 29% of the world’s economy. So when people ask how likely we are to be in real trouble real soon in terms of our debt and competition, the answer is, not very.”
Taxes on Business
During the discussion, Barnes posed the question of whether additional taxation on both small and large businesses was on the horizon and, if so, what the impact would be.
“We now play on a global stage unlike we have before,” Ford, Jr. said. “Any further efforts to raise taxes on American businesses would lower the competitiveness of many of our companies. The last thing we should do is depress that competitiveness going forward.”
Gingrich chimed in by again making the connection between the relationship of U.S. business interests and today’s global economy.
“In one of the polls I reference and will soon be releasing, 70% of the country favors a tax break for corporations which keep their headquarters in the U.S.,” Gingrich added. “There’s a very real problem that in the next few years London may pass New York as the financial center of the world. This would have an affect on the cost of municipal bonds, the cost of small business and, in fact, on every aspect of American life.”
Other factors Gingrich perceived as contributing to the loss of American business to overseas competitors include the stringent U.S. travel visa system, corporate litigation laws and the Sarbanes-Oxley Act.
“Sarbanes-Oxley has two negative effects,” Gingrich explained. “One is that it drives businesses offshore, and the other is that it’s driving businesses to go private. So, we’re actually seeing a smaller and smaller pool of corporations that are going to be responsive to Sarbanes-Oxley. And so in those terms, I would argue that Sarbanes-Oxley has done more damage than Enron by a factor of 300.”
Taxes on the Affluent
When asked about taxation on individuals that earn $200,000 or more a year, and the impact of reversing President Bush’s tax cuts on this segment of Americans, Gingrich and Ford Jr. had similar views.
“Eighty percent of the country favors an optional flax tax program that can be managed with a single page tax form,” Gingrich said. “And by 49 to 40, the country would abolish the Capital Gains tax. What’s happening is that people have 401Ks, they have pension plans, they have small investments, and you begin to see the emergence of a huge middle class investor group who look around and say, you know, if you’re going to compete with China and India, maybe taxing productivity is not very smart.”
Retirement Savings/Social Security
Gingrich and Ford, Jr. spent more time on the issues of retirement and social security, citing the tremendous impacts soon to be seen by the emerging retirement transitions of millions of baby boomers over the next 5-10 years.
“When the first social security checks were distributed in 1935, there were 42 taxpayers for every recipient; today, that number is down to three,” Gingrich explained. “As we’re now looking at today’s demographics, the number of Americans who are going to live to be over 100 are breathtaking. So we have this challenge that people are living much longer, but we have very significant health side effects for a substantial number of those folks.”
Gingrich emphasized how critical it is for the financial advisor community to help motivate their clients to save for retirement by explaining some very basic savings principles.
“We’ve got to get across to people the power of compound interest. If the average American understood the sheer power of compound interest over a lifetime, we’d be able to get people into the habit of saving and investing at a very early age. We’re going to have to find a way to do this if people want to have enough resources to live the quality of life they want to later on in life.”
Ford, Jr. built on Gingrich’s comments, stating that younger generations today are beginning to focus more on retirement savings because of their perceptions of the country’s Social Security program.
“By the time you get to be my age, I’m 37, and you poll the people of my generation, even as you go down the age ladder people believe that they’ll never see their Social Security benefits, and so they are making different life choices,” Ford, Jr. said. “And, their habits are far different today based on what they don’t believe they’ll see a few years down the road.”
Gingrich concurred, saying, “For so many years, the great power of Social Security, and the reason it worked psychologically, is because it used to be a certainty.”
Both agreed one option to help preserve the future of Social Security program would be to raise the age tiers for which people would be eligible to begin receiving benefits.
Healthcare and the ’08 Presidential Election
Gingrich said he believes healthcare could ultimately be the single biggest tipping point issue in the 2008 Presidential election.
In referencing various polls he has recently seen, Gingrich said, “I think in about 80% of the futures, Senator Clinton is the next President.”
“However, in New York state, according to the New York Times, annually, there is $4.4 billion dollars in pure fraud in Medicaid,” he stated. “And in Florida, it was announced recently that there are three counties in South Florida that have filed for $2.8 billion in federal AIDS money. To give you a sense of comparison, in the same year, the entire rest of the country filed $1 billion. If Senator Clinton becomes the Democratic candidate, the great danger she faces is that if any Republican ever figures out how to communicate that she wants to take a system that is bankrupt, and wants to put your healthcare in that bureaucracy, then I think suddenly she’s going to lose the Presidential race.”
Assessing the Republican race, Gingrich explained how he thought limited campaign funds among the front runners could lead to a “glorious mess,” saying that it could end up with a delegate breakdown of Giuliani at 30%, and Thompson, Romney and McCain all coming in between 15-20% as the candidates approach the Republican convention.
For more information about organizations and activities Newt Gingrich and Harold Ford, Jr. are involved with, visit:
http://www.americansolutions.com/
http://www.dlc.org/