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It’s Time to Rebuild America—Literally

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It’s Time to Rebuild America—Literally

It’s campaign season with a vengeance, and candidates are discussing their plans for improving America. 

What many voters should realize, however, is that America needs more than rebuilding in mere metaphor.

 

America’s Roads are in Terrible Shape

In its last report card, the American Society of Civil Engineers gave America’s roads a D. 

It estimated that wasted time and fuel from over-congestion were costing the United States’ Economy $101 billion per year.

The actual physical state of some roads are terrible too, as any casual observer can tell you. 

They are full of bumps and potholes that can cause damage to cars and loss of driver control. 

Many have dangerously-faded markings that open motorists up to misunderstandings and accidents.

 

America’s Bridges are also in Terrible Shape

The ASCE gave bridges a slightly better grade— a C+. 

It also estimated that 1 in 9 of U.S. bridges are structurally deficient. 

Structurally deficient bridges pose serious safety issues as a bridge collapse is highly likely to lead to fatalities.

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A Selection of Other Infrastructure Elements as Graded by the ASCE:

  • Drinking Water: D
  • Aviation: D
  • Rail:  C+
  • Transit:  D
  • Energy:  D+

 

Our infrastructure is in shambles right now.

Bridges are falling apart, airports are inefficient, public transit barely exists in small towns, and even clean drinking water is no longer a guarantee.  School teachers use their income to buy needed supplies for students.

 For an arguably rich, First-World nation, we’re flunking in a lot of ways right now.

 

So Why Aren’t We Fixing It?

There is no easy answer, but it mostly comes back to money. 

Both maintenance and new projects are getting more expensive—so much so that current funding can’t keep up. 

Although the government was spending 44 percent more on infrastructure in 2014 than in 2003, that money lost purchasing power—9 percent worth—over that same stretch of time.

American roadway projects lack funding due to the ailing Highway Trust Fund. 

For two decades, Congress has refused to raise the gasoline tax which funds it. 

In fact, certain states have taken matters into their hands and raised gas taxes themselves to pay for road improvements.

 

Speaking of Which, States Can Either Help or Hinder the Process of Maintenance and Repair

As stated above, some states are realizing that the Federal Government is not going fix their roads, so they are beginning to do it themselves. 

Other states, however, divert funds intended for roads to other places in order to balance their overall budget.

Clearly, the states alone cannot handle the current shortfall in and of themselves.

 

The Three Big Presidential Candidates All Have Plans for Infrastructure

Their solutions just differ in scope and specificity. 

All of them endorse pouring money into America’s wounded infrastructure. 

They even seem to have the same basic concepts in mind, though their proposed executions differ.

 

Bernie Sanders Wants to Bolster the System with $1 trillion in Funding

He holds that this would bring the United States at least 13 million new project-related jobs that absolutely could not be outsourced. 

Inasmuch as it would both bring improvements to the infrastructure and jobs to the unemployed, his plan very much resembles FDR’s New Deal.

He claims to have already worked out enough ways to cut corporate tax dodging to fund at least half of this plan.

 

Hilary Clinton, on the Other Hand, Promises $275 Billion in Funds

While her funding proposal would stretch out over a five-year period, Hillary Clinton too wants to increase spending on infrastructure, paying for it with business tax reform. 

Again, the plan resembles the New Deal in that it would create a number of jobs which would theoretically be middle-class. 

However, she would also create a national infrastructure bank with $25 billion in funds to support infrastructure investment.

The bank would work with the private sector and renew and expand the Build America Bonds program.

 

Donald Trump is Confident he’s the Guy for the Job.

Trump realizes America’s infrastructure is failing and is confident he can fix it.

He says, “If we do what we have to do correctly, we can create the biggest economic boom in this country since the New Deal when our vast infrastructure was first put into place.”

He has not disclosed a specific plan, but has said the project will be a trillion dollar rebuilding plan which will create 13 million jobs. 

 

The Situation is Far from Hopeless, But America Does Have Her Work Cut Out for Her

Like any bad report card, the ASCE’s ratings should be looked at as a challenge to work on problem areas and do better. 

Yes, the infrastructure is in a bad place right now. 

America as a nation has to work on fixing it.

All three presidential candidates have ideas and solutions in mind. 

Any one of their solutions—while bearing a price tag—would have the silver lining of creating tons of jobs for American workers. 

And they are far from the only ones thinking about the problem.

 

Conclusion

As long as we continue to look for solutions, the money sink that U.S. infrastructure has become does not have to remain expensive and broken. 

We can, in fact, rebuild America. 

And I do mean that literally.

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Business

Stock Market Recovery Sets Record, Is Melt-Up Next?

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Stock Market Recovery Sets Record, Is Melt-Up Next?

It’s been 100 trading days since the lows on March 23. The rebound we’ve just experienced is the largest in the last 90 years.

The S&P 500 has rallied more than 50% since the lows, and that’s the biggest 100-trading-day rise since the period ending Aug. 18, 1933, according to Dow Jones Market Data.

Bespoke Investment Group noted the same thing yesterday, sending out a tweet that said “Tomorrow the S&P 500 will mark 100 trading days since the Covid Crash low on 3/23. The ~50% gain over the last 100 trading days would be the biggest since 1933.”

The whipsaw action in the S&P has been one for the record books, with the fastest plunge into a bear market in history, followed by an equally-historic recovery.

Not to be outdone, the Dow Jones Industrial Average also remains on pace for its largest 100-trading-day gain since August 1933. Additionally, the Nasdaq is on pace for its best 100-trading-day gain since the peak of the dot-com bubble in March 2000.

A Melt-Up Happening Next?

This massive run-up has at least one Wall Street veteran wondering if the next step is a melt-up.

Ed Yardeni, chief investment strategist at Yardeni Research, said in a recent blog post, “We live in interesting, though not unprecedented, times. The Roaring 1920s could be a precedent for the Roaring 2020s.”

He compared the 1918 Spanish flu pandemic that preceded the Roaring 1920’s to the coronavirus pandemic today. The current crisis could precede the Roaring 2020’s.

“The good news is that the bad news during the previous precedent was followed by the Roaring 20s. So far, the 2020s has started with the pandemic,” he wrote. “But there are plenty of years left for the prosperous 1920s to become a precedent for the current decade.”

“Today’s doomsters could be confounded by biotechnological innovations that deliver not only a vaccine for COVID-19 but for all coronaviruses. Scientists are investigating an array of approaches to fight COVID-19. Hopefully, beyond finding a cure or a vaccine, one of the beneficial outcomes of all this research will be that scientists learn many more ways to combat illnesses in general and viruses in particular,” Yardini added.

So where do we go from here?

Yardini believes we’ll have a strong finish to the year for the S&P 500 due to more stimulus and a resilient bullish trend. He predicts the momentum will carry into 2021, where the S&P could end the year with a double-digit gain.

“The 1920s ended with a stock-market meltup followed by a meltdown,” he said. “The 2020s may already be seeing a meltup, begun on March 23.”

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President Trump Vows To Lower Capital Gains Taxes During Second Term

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President Trump Vows To Lower Capital Gains Taxes During Second Term

If he’s victorious in November, President Trump has vowed to lower capital gains taxes. He sees it as another way to help the country recover from the coronavirus pandemic.

During an appearance yesterday on Fox Business with host Maria Bartiromo, Trump said “I’m going to do a capital gains tax cut to 15% in the second term. We’re going to get it down to 15%. It’s at 21%. We’ll get that down to 15%. I’ll get that done easily.”

Taxes on long-term capital gains – when an asset is held for more than one year and then sold – range from 0-20%. The exact number depends on the individual’s income bracket. Wealthier investors also pay an additional 3.8%. Short-term capital gains – when an asset is held for less than one year and then sold – are taxed as ordinary income.

President Trump can’t slash the capital gains tax rate on his own as he would need the Congress. However, he can try to sidestep Congress by indexing any long-term capital gain to inflation.

Trump had floated the idea of indexing capital gains to inflation last year before ultimately pulling the plug. At the time he told reporters that the idea was “perceived as somewhat elitist” and “better support for upper-income groups.”

Lower Taxes and Capital Gains

By indexing capital gains to inflation, Trump is trying to lower taxes. In particular, he tries by making a portion of gains exempt by adjusting the original purchase price to match inflation.

The Tax Foundation has a relatively straight-forward example:

“Proposals to index capital gains can vary, but generally they allow individuals to gross up the basis of their assets when calculating their capital gains to account for changes in the price level over time. For example, if an individual purchased an asset for $100 on January 1, 2000 and sold that asset for $200 on July 1, 2018, the nominal capital gain would be $100. However, inflation over that period increased the price level by 49 percent. Under an indexing proposal, the individual would be able to gross up the basis of $100 by the total inflation during that period to $149. As a result, the individual would only be taxed on $51 instead of the full $100.”

Naturally, by lowering taxes the government would see a drop in revenue from collecting less taxes. Interestingly, the Tax Foundation says that the revenue drop will be somewhat muted. This may likely happen because individuals will be losing less of every dollar on taxes. Therefore, people will have more to spend.

“The increase in output due to the lower cost of capital would boost incomes, which would boost payroll revenue and slightly offset individual income tax revenue losses.” notes the Tax Foundation.

What to Expect From Opposition

And while Trump is doing everything he can to lower taxes, he warns that his opposition is going to raise taxes.

“They want to tax $4 trillion, it’s going to be the biggest tax increase in history by far,” Trump told Bartiromo. “They’re big taxers. It’s just something that won’t work. We’ll have – you will see a depression the likes of which you have never seen. You’ll have to go back to 1929, I guess it doesn’t get too much worse than that.”

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UBS: Economy Still Facing Deep Risks

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UBS: Economy Still Facing Deep Risks

Economists at UBS warn that even after an uptick in economic activity in May and June, the pace of recovery slowed in July as consumers, workers and businesses remain cautious.

The economists believe that the unemployment rate will be hovering around 10% by the end of the year. However, they do expect a strong jobs recovery next year as the country wins the battle against the pandemic. They expect the country’s GDP to rise 5% in 2021 as the economy slowly returns to normal.

The Basis of Models

UBS’ chief US economist Seth Carpenter added that the models that UBS is basing their GDP projections on don’t factor in a large increase in new infections. This is something that could add another hurdle to the recovery. Alan Detmeister, a UBS economist, believes that the recovery is less about the number of cases. Instead, it’s more about the level of restrictions in place.

“The risks are deep,” said Carpenter during an interview with MarketWatch. He points to three challenges facing the economy as it tries to recover. These three include overall job growth is now slowing, incomes are falling, and both households and businesses are hesitant to make long-term plans.

When it comes to job growth, UBS economists are focused on what he calls “labor-market scarring,” according to Carpenter. He’s worried that the next 6 to 12 months could exhibit a “prolonged dislocation in the labor market,” and added, “What’s going to drive this is how fast people get their jobs back.”

The group also noted that except for the automotive sector, manufacturing jobs saw a drop in growth during July. The labor-force participation rate also slipped in July after gaining ground in May and June. “And within the employed, a large share remained either part-time for economic reasons or employed but not at work,” they noted.

Income Drops to Slow Recovery

Falling incomes will also slow any economic recovery. The bank warns that household incomes will drop 10% at an annual rate. This is due to the expiration of enhanced unemployment benefits and at least thus far, no additional stimulus checks. Even with an extension of unemployment benefits or another stimulus check, the economists say it won’t make up for the massive financial relief that was “the lifeblood to prevent the economy from tanking” from March through July.

This drop in incomes is putting further strain on the retail sector. Bankruptcies are piling up, most recently with Stein Mart announcing it would enter bankruptcy and will likely close most, if not all, of its 300 stores.

Neil Saunders, managing director at GlobalData Retail, notes that Stein Mart is just the latest retailer to go under. He’s also sure that won’t be the last. “The failure of Stein Mart is not only the latest in a long line of retail bankruptcies, it also underlines that even traditionally robust segments like off-price are not immune from pandemic-induced disruption.”

He added, “For a company that, at the start of this year, was in the process of selling itself to a private investment firm, the bankruptcy is an abrupt change in fortunes that shows the immense damage the pandemic has inflicted on retail.”

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