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November 3, 2011

Stephen Moore, well-known economic writer and policy analyst, continues his webinar series with WealthVest Marketing. Stephen addresses the Republican presidential contest, key preferences, and the Congressional Super Committee. Stephen believes that we have avoided a double-dip recession.

Stephen Moore 11/3/2011

Wade Dokken:      This is Wade Dokken, Co-President of WealthVest Marketing.  Again, we’re very fortunate to have Stephen Moore as a commentator on All Things Political and All Things Economic today.

Good morning, Steve.

 Stephen Moore:    Hey Wade, great to be with you.

 Wade Dokken:      I think that although what’s in the news is, of course, Governor Perry drunk on his speech and Herman Cain, not a hoper but a groper, but what is actually more interesting about the two is not those peccadillo’s, which really don’t affect anything, but like Steve Forbes a decade ago; both of these guys are trying to come out with tax plans which flatten the tax and remove accountants and accounting from the core of investment and decisions.

I’d really love to explore that because maybe with everything else, the time is now.  Can we explore that first?

 Stephen Moore:    Yeah, let’s do that.  Let me actually just start with what you started on because I think all of these allegations against Herman Cain, and the fact that sometimes it looks like Rick Perry was drinking before these debates is of consequence here because a week ago – I’m just trying to remember the exact date.

About exactly a week ago, Wade, the National Polls came out that had, believe it or not, Herman Cain in first place, slightly ahead of Mitt Romney in the National Polls.

The polls in Iowa, which are crucial, had Herman Cain with a nice little lead over the rest of the pack, so there was incredible momentum there for Herman Cain going into this week, and these allegations; you can’t separate these from the policies because they have clearly kind of slammed the brakes on the progress.

I know nothing about these allegations.  I don’t know what’s true.  I don’t know what’s not true, but I do know Wade, that his handling of these allegations has been really piss-poor.  He has not looked professional.  He has not looked presidential.  He’s made one state that he had to kind of back off on it – “Oh this never happened.  Oh maybe there was one thing.”

That’s not good when you’re running for President.  He should have come out with this right from the start.  In other words, months ago when he started his campaign, he should have revealed these kinds of things because they always come out and it looks like there was a bit of a cover-up.

I want to say that because I think that it has deterred his ability to get his message across on things like 999.  The same thing with Governor Perry; the fact that he looks so poor in these debates, detracts from his message bit, so with that said, what is exciting is that you do have these two Presidential candidates out there with very bold plans.

The 999 Plan, which we talked a little bit about when we had this conversation, is 9% sales tax, 9% corporate VAT tax.  It’s a value added tax Wade.  That is on not just the profits, but also on the wages and salaries of workers, because employees are part of value added, and then a 9% personal income tax rate with all of the deductions gone.

I think that would be huge for the economy, if we could get it done.  I think one of the reasons why Herman Cain was rising in the polls is because especially among Republican primary voters, the idea of just blowing up the tax system and starting over is a very, very popular idea.

So then, Rick Perry a week later, which was 10 days ago, came out with his 20% optional flat tax.  I think that has a lot of value to it too.  It would get rid of virtually all of the deductions and get the rates down – zero capital gains, zero dividends, and zero estate tax.  It gets rid of the double tax on saving and investment.  That’s a very popular issue and idea with Republican voters as well. So that’s a healthy and substant debate that the Republicans are having on how to fix the tax system.

I don’t know where this is headed.  It’s interesting – I think almost all of the Republican candidates now have come out with very ambitious tax overall plans.  The only one that hasn’t is Mitt Romney.  Romney has been kind of skirting the issue a little bit.

He’s saying, “Oh well, I’m in favor of the latter system,” but he hasn’t really said how that would take shape.  In fact, if you look at his plan – and it’s important to understand his plan because he is, right now I think the big front runner in terms of the chance of him winning the primary.  His plan actually would not reduce the rates at the top, but would reduce lower rates.

As a supplysider, I don’t see a huge value in that.  It’s like a joke that we made at the Wall Street Journal, is “He wants to cut the capital gains tax for everybody except those people who have capital gains.”

So that’s a bit problematic, although I’ve talked to Mitt Romney about this and I think that he’s open-minded to doing something more ambitious, but he just won’t tell us what that is.

The bottom line here, Wade is I do think if the Republicans win the Presidency in 2012, one of the top priorities of a Republican president – and if a Republican wins the White House they almost certainly will have a Republican in Congress – will be to do some pretty bold tax reforms that get rid of the pollution and lower the rates.

 Wade Dokken:      So let’s just drill down a little bit.  The way I look at it – I actually am very fond of reducing rates, but I think most Americans see that reduction as a reduction in the overall receipts of the Federal Government.  I don’t think a flat tax necessarily accomplishes that.  A spending policy accomplishes that, not a tax policy.

The only way you get a flat tax, assuming that you end up targeting the same amount of revenue or more revenue, depending on what the needs are, is you have to get rid of preferences.

I’d like to understand what you think are the preferences that really go away in Cain’s proposal or Perry’s proposal.

 Stephen Moore:    Great question and I do believe that – first of all, let’s go back to 1986 – that wasn’t so long ago.  We did this.  We did something, I think was very pro growth, very anti-corruption, and anti-crony capitalism, and anti-special interest group when we lowered the tax rate from 50% down to 28%.  But at the same time, we got rid of huge numbers of special interest loop holes, and that was done Wade, remember on a revenue neutral basis.  That is, every dollar that was lost from lower tax rates was regained by getting rid of the tax loop holes.

I sincerely believe, 25 years later, it’s time to do that again because what’s happened over the ensuing 25 years, Wade, is we keep adding more and more loop holes to the tax system because that’s just the way the political tax system works.  So I firmly believe, in my heart, that there is room for a deal here where Democrats say, “Look, let’s get rid of these loop holes,” and Republicans say, “Well do that if you will lower rates a bit.  So I think there’s a deal in the offing.

Then the question you raised is the critical one – the drill down issue is what do you get rid of?  I think you can get rid of a lot of the green subsidies that Republicans have no interest in and haven’t really accomplished a whole lot.  I think there’s a lot of talk of getting rid of potentially the mortgage deduction and potentially the state and local…

 Wade Dokken:      Stop on the energy one.

 Stephen Moore:    Okay.

 Wade Dokken:      So why only point out the tax subsidy that is preferred by the left, why not point out the energy subsidy…?

 Stephen Moore:    No, no, no that’s a fair point, so that’s where I was getting.  I mean, the mortgage deduction; that one is…

 Wade Dokken:      Let’s stay on energy for a second.

 Stephen Moore:    Okay.  Well, which ones are you talking about?

 Wade Dokken:      Well, what about the remaining oil preferences or the [8:44.5] preferences?

 Stephen Moore:    Wade, I think those should go.  To the extent you have illegitimate tax preferences to the oil industry; I am all in favor of getting rid of that.  No question about it, and so that should go too.  An energy policy, we should just have a level playing field.  I’m in favor of getting rid of every subsidy that goes to solar, wind, nuclear, oil, coal – all of those subsidies in a perfect world would go away.  I agree with you entirely, but the point I was making is there are these other big ones that are things like mortgage, charity…

 Wade Dokken:      I’ll get those.  There are cross-subsidies, right?  You bring up the poster child, which actually is not a huge number, but then you have the external impact numbers; not unlike the acid rain or how do you feel about the lack of cost structure for those externalities?

 Stephen Moore:    That’s a good point, and by the way, one of the things that’s interesting about almost all of these Republican proposals is they move the tax space – and I should have made this point at the outset.  They move the tax base towards a consumption model.  In other words, what you’re taxing under the flat tax, for the most part, and even under the Herman Cain plan, for the most part, is you’re taking consumption and not savings investment.

Why that’s interesting is, first of all, consumption in my opinion, is what we should tax because savings investment are the building blocks to the economy and right now we double and triple tax saving investment, and that’s why we have too little of it.

The point that you’re getting at is we have externalities – too much use of oil, gas, and so on that cause pollution – greenhouse gas and so on.  Well, one of the virtues of a consumption tax, is you’re actually taxing that.  A consumption tax is just a form of a carbon tax.  A carbon tax is just a tax on the people’s consumption of energy, so that’s kind of interesting.

One of the things I’ve been thinking about is we’ve got to convince the liberals and the greens that taxing consumption is a way of reducing pollution.

 Wade Dokken:      So then you were going to move to the mortgage deduction.

 Stephen Moore:    That’s the toughest one.  That’s huge.  That’s a huge one, but it’s also the hardest one to get rid of because that has a massive housing constituency behind it.   And not homeowners; I’m talking about realtors, homebuilders, mortgage banks; those are the people that feel like this is just life and death to them.  I don’t believe that to be true.

I think, “Look, if you can get the tax rate down to 18-20%, then the value of these deductions isn’t that important anyway because you’re only getting 18 or 20 cents on the dollar.  But yeah, that’s going to be really difficult to do.  The next big one is the state and local deduction.

 Wade Dokken:      Let’s stay on that one for a second.

 Stephen Moore:    Okay.  Sure.

 Wade Dokken:      I think intellectually that the home mortgages, in my opinion, are the most important one to get rid of.

 Stephen Moore:    I agree.  You know why?  Because as a country, as a nation, we’ve gone through the last…

 Wade Dokken:      We over invest in things that don’t produce.

 Stephen Moore:    Yes.  We over invest in housing, swimming pools, and things like that and we under invest in things like factories and things that put Americans to work.

 Wade Dokken:      I mean our houses don’t end up making Iphones.

 Stephen Moore:    That’s right.  Well put.

 Wade Dokken:      I think your point is incredibly good, which is if you push the marginal down – let’s just say parenthetically Perry’s 20 or Forbes’ 20 before that, so number one, the value of the deduction is much less.  Number two is, the value of the deduction is really predicated on an assumption that prices are rising.  If Americans had made a big shift of thinking less that the prices are rising and they’re willing to leverage their house less, so frankly, debt on a flat appreciating asset is not a smart thing anyway.  But look what we happen if we dropped that.

 Stephen Moore:    Did you say debt on an appreciating asset?

 Wade Dokken:      On a non-appreciating asset.

 Stephen Moore:    I was going to say, the real problem in the market is people in debt on depreciating assets.  That’s how we got into this crisis; everybody took out these huge mortgages on houses they couldn’t even afford to pay the mortgage, but they just figured the asset is going to appreciate the value, and therein lies the housing crisis, right?

 Wade Dokken:      I think the next one is health insurance.

 Stephen Moore:    Yeah, and that one is the toughest because it’s very difficult to take away the health insurance deduction because it’s easy for unions and so on, that have negotiated very generous health plans over the last several decades; they’re going to say, “Whoa, this is a problem.  You’re taking away a fringe benefit of mine by taking away the tax deduction.”

Now from an economics standpoint, I believe very strongly the right thing to do is to treat healthcare benefits as form of compensation, right?  If I pay you Wade, and you’re working for me; if I pay you $10 an hour that’s taxed, but if I pay you $7 an hour in wage and salary and then $3 in healthcare benefits, the healthcare benefits are not taxed but the wage and salary is.  That doesn’t make a lot of sense; it’s all compensation to the worker.

It’s the right thing to do economically, but I have to admit, it’s a tough sell because the opponents are going to say, “You’re taking away your health plan.”

 Wade Dokken:      But the problem is that the corporate deductibility, it has to be a significant contributing factor to the escalation of healthcare costs.

 Stephen Moore:    Yes.  Definitely.  And by the way, I think if you didn’t have that deduction, it’s not like people would lose their health benefits.  I think two things would happen.  I think one is, over time, we would move away from an employer sponsored health system – and I’ve always been in favor of that.  You and I have talked about that.

Companies should be making products and not being healthcare companies.  You know, the joke here today is that General Motors doesn’t make cars, it provides healthcare, and so that’s been a problem with our competitiveness.

The other thing that it would do is it would probably lead to less of a system where healthcare is paid for by third parties.  People would have more catastrophic coverage, but things they could afford to be paid for out of pocket would be paid for out of pocket, and that would, I think, lead to more sensible healthcare decisions by everyone.

The third big one though is the state and local deductions – municipal bonds and things like that.  It’s never made sense to me that you should be able to deduct your state and local taxes from your federal taxes.  All we do then is reward people in high tax states like California and New York.  Probably half of the people listening to this show are from California and New York, but on the other hand, if you live in New Hampshire where you have very lean public services, you don’t get the deductions that people in high tax states do.

That one, I think is more doable, and in any case, if we could get rid of those three; that’s about half of the revenue, just those three deductions right there.

 Wade Dokken:      More doable.  So you’re saying it’s more doable and you’re looking at a 45-member Congressional district in California, and a 38-member Congressional in New York, okay.

 Stephen Moore:    No, that’s a great point.  In fact, just a few years ago, we actually made state sales taxes deductible from your Federal income taxes.  I think that one should go away, and I actually think that the deduction for municipal bonds should go away.  Now that one also, and if there are any bond traders listening to this, they are probably hyperventilating over that, but I just don’t see why we favor debt from municipalities over debt from corporations.

 Wade Dokken:      All bonds, GO’s, and IDR’s, or only IDR’s?

 Stephen Moore:    I think all bonds.  That’s all negotiable, but the flat tax gets rid of the deduction for all bonds.

 Wade Dokken:      Hum.  Okay.

 Stephen Moore:    Let me just say one thing that’s kind of interesting that I found out this week.  Now there’s a lot of talk on the corporate side of us doing the same thing; lowering the rate and getting rid of deductions.  One of the deductions that are being very seriously talked about right now to get the 35% rate maybe down somewhere between 25-30%; would be to get rid of the deduction for interest expense.

That would mean when corporations borrow, they would no longer be able to deduct the interest expense from the borrowing.  I am in favor of that, a) Because you can reduce the rate a lot if you do that, and b) I really believe one of the problems in corporate America today is companies are too dependent on debt and not dependent enough on equity.  There’s a bias in the tax code right now in favor of debt financing over equity financing.  Getting rid of the interest expense deduction would create neutrality between debt and equity.

 Wade Dokken:      Well…

 Stephen Moore:    That’s a big one right?  That’s a big deal if they change that.

 Wade Dokken:      Well, it’s a huge deal, but if we’re going to de-leverage the society, it’s an essential one.

 Stephen Moore:    I agree.  I totally agree.

 Wade Dokken:      So in the backdrop of this; the reason that question intrigues me is that realistically, how many days do we have left in the Super Committee now?

 Stephen Moore:    Well, I’m writing a piece right now on that as we speak.  Literally, I was halfway through it when I picked up the phone to make this call.  I’ve been in touch with the Republican members of the Super Committee and they have only about a week left to make a decision because they have to get the whole thing scored and voted on, under the law, the day before Thanksgiving.  So almost literally, if they don’t get this done by the end of next week, the clock probably runs out.

You know, it’s amazing, I’ve spent all week talking to these members and I can’t tell you right now whether this is going to get done or not.  They’re going to be negotiating all weekend behind closed doors just to try and get a deal.  The deal that looks like its taking shape is to get the corporate rate down to maybe 28% by getting rid of some of the loop holes.  They’re talking about doing this Feldstein Plan, which is limiting your deductions on your tax form to about 3 or 4% of your adjusted gross income.  And then in exchange for that, the Democrats would agree to make the Bush tax cuts permanent.  So the tax rate wouldn’t go from 35-42% in 2013, and capital gains and dividends would stay at 15%.

But that’s a big static revenue tax increase because limiting those deductions raises a lot of money.

Then on the spending side, what Republicans want is two or three big things in terms of entitlements.  One is a gradual phase-in of the retirement age – something you and I have talked a lot about.

 Wade Dokken:      Gradual phase-in; you mean increase of the retirement age?

 Stephen Moore:    Yeah, an increase of the retirement age.  The second would, be the changing of the benefits structure, the way we do the cost of living increase every year; changing from a wage-based to an inflation based.  That sounds like a small deal but overtime it saves a lot of money.

Then the third thing is just requiring more co-payments and higher premiums on Medicare, because Medicare is so indebted and headed towards bankruptcy.

 Wade Dokken:      Why not means testing on both of them?

 Stephen Moore:    Yeah and there would be some component probably of a means test with respect to the premiums and the co-payments.  So in other words, higher income people would pay higher co-payments, more premiums; a bigger increase than someone with $20,000 of income.

 Wade Dokken:      Just so our listeners know that particular one stacks up differently than people think.  The left is the one that has often been against means testing.

 Stephen Moore:    Yes.  That’s a really important point, and it’s always been curious to me.  You would think that liberals at the Democrat table would say, “Well let’s restrict Medicare so that Warren Buffett doesn’t get it and Bill Gates doesn’t get it,” and so on.  But actually, the Democrats have resisted that because they don’t want Medicare and/or Social Security to be seen as welfare programs.  They want everybody to get it, so that it’s not defined as a low income program.

My feeling is, “Look we just can’t afford this anymore.”  Folks, these are not small deficits we’re talking about.  We’re talking about 10’s of trillions of dollars of deficits in these programs over the next 75 years, and if you can change the benefit formulas just a little bit now, the savings magnify hugely in the 10 year, 20 year, 30 year, 40 year projection.  So this is about saving these programs for not just our children, but our grandchildren.

 Wade Dokken:      Well, I happen to disagree with the left on that.

 Stephen Moore:    I think we’re headed there. I would bet just about anybody on this phone call that sometime in the next two, three, or four years that this is going to happen.  Just because, how else are you going to pay the bills for the program?  We just have to do this.

Why in the world are we giving free health care to Warren Buffet?  It makes no sense.

 Wade Dokken:      No, no, no.  You know we’ve got a little bit more time.

 Stephen Moore:    By the way, one other point on this since you got me going on it.  It’s interesting; I was just looking at the numbers that came out in the census about incomes.  Do you know what the richest income group in America is today?

 Wade Dokken:      No.

 Stephen Moore:    People over the age of 50.

 Wade Dokken:      Oh, the Demographic group?

 Stephen Moore:    Yeah.

 Wade Dokken:      Yes, I knew that.

 Stephen Moore:    People between 50 and 65 – because they’re at their peak earning years are the richest group.  But then people over 65; they’ve built up wealth over their lifetime.  We have this system where relatively lower income young people are paying into a system to pay benefits to relatively higher income older people.  It doesn’t make any sense when you think about it.

 Wade Dokken:      No, it’s wrong.

So we have GDP’s.  So we have upper revisions and we have new GDP likely to be revised to 2.5%.

 Stephen Moore:    Yup.

 Wade Dokken:      Not exactly the sexiest thing in the world, but certainly pushing away from a double-dip.

 Stephen Moore:    Yes.

 Wade Dokken:      What do you want to say about it?

 Stephen Moore:    Just what you said.  I think you summarized it very well.  If you had asked me a month ago I would’ve said, “I’m really worried about a double-dip recession.”  At least for now I think we’ve clearly averted that crisis.  And we’re looking in the fourth quarter of 2011, which we’re almost halfway through already; it’s looking pretty good.  I could see maybe 3% growth in the fourth quarter, which is a hell of a lot better than the zero percent we were worried about a few months ago.

So yeah, the economy seems to be percolating a little bit better than it was.  Obviously all this noise about what’s happening in Europe hasn’t been helping, but I’m feeling like everyone is, a little bit better about the economy, but it’s so fragile.  That’s the thing about this economy right now, Wade.  I’m always hesitant to make predictions about where things are going to be in 2012.

 Wade Dokken:      Sure.  You wouldn’t be making any money if you didn’t make predictions.  What are you talking about?

 Stephen Moore:    No, but economists are always wrong in these predictions.  I don’t know why you all listen to us, really, but my point is it’s such a fragile economy – you just take one of the toothpicks out of this house of cards and the whole thing could collapse very easily.  It’s a time to be cautious.  It’s a time to be cautious but I’m feeling somewhat more optimistic than I was a few weeks ago, and I think part of it is there’s a bit of a stalemate now in Washington, and that’s not such a bad thing.  It’s not such a bad thing to have a little gridlock in the system because at least for now, businesses know what the rules are.

 Wade Dokken:      You know, we’d better mention the Feds.  So the Feds just met and they decided to take no new directional action.  What’s going on there?

 Stephen Moore:    I’m not a real expert on the Fed.  I’m not a close Fed watcher.  I’ve had my head buried so much in this budget stuff, I don’t know if I have a great answer on that.  The bottom line is the Fed stills remains extremely accommodative.  For those of you who read the Wall Street Journal Editorial page, you know we’ve been very critical of the Fed.  We think that rates have been just held near zero for way too long, at a potential peril.

Here’s my worry Wade, there’s very little inflation out there right now.  There’s some but not a whole lot.  The worry is that because of all this excess money that’s been created over the last few years, that when the economy picks up, and if we do get 3% growth and consumers feel like they can go out and spend again, then I think you risk a resumption of inflation and nobody wants to see that.  That’s my worry is that the Fed has been inattentive to the consequences of all this easy money, which at some point, you’re going to get higher prices as a result of all the money that’s flashing around in this economy.

Right now it’s dormant.  It’s just sitting on the sidelines because consumers are afraid to spend and businesses are afraid to spend.  If that changes, which we hope it does, then I do worry.  I’m not talking about rapid rates of inflation, but you could see the inflation rate go to 4-5% and that’s suboptimal.

 Wade Dokken:      Although the small point is that my business would boom in that scenario.

 Stephen Moore:    Sure.

 Wade Dokken:      Okay, I’m going to ask you one more question, which neither one of us are experts on, but I read countless stories and I’m still confused.

So what exactly does Greece hope to accomplish and what is their policy?  They agreed to a certain set of circumstances then they put it up to a publicite, which I can’t even imagine it passing.  So what will happen?

 Stephen Moore:    Well, you know if you read our editorial yesterday, which I had a hand in, I actually think this idea of letting the Greek citizens decide is not a bad thing.  I think this idea that Europe should be run by Brussels or by these elites is not healthy for a Democratic country.  The Greek people are going to have to decide for themselves on this, and you’re right, it may be that they vote down this rescue package, but who should decide that?  Should it be the elites in Brussels or should the Greek citizens?

I know that this has caused a lot of heartburn in the markets, no question about it, but ultimately, it’s the elites that got these countries into this mess in the first place and so, I think they’re going to have a publicite.  Lord knows who they’re going to vote on it.  You never know.

Remember about five years ago that the French voted “no” on this – they wanted a kind of super governing authority and France voted no.  I think ultimately, it’s not a bad thing, by the way, that these bond holders that bought this Greek that are going to take a haircut.  This is a de facto default on the debt.  It’s not technically a default, but it’s a de facto default.  My feeling about this overall is people who own government bonds should be on warning that these countries are going to have a tough time paying their debts.

It’s just that simple.  They have made promises to spend money on programs they can’t afford.  It’s what we’ve been talking about for the last half-hour.

 Wade Dokken:      You’re right.  You have to be right.  Why should not companies with Italy’s, Greece’s, America’s, Japan’s or anybody else’s level of leverage – why shouldn’t that be fully priced into the interest rates?

 Stephen Moore:    And it’s not.  It’s not.  That’s the thing that’s so amazing to me.  Look, I believe that the list of a default on the U.S. Treasuries – when we talked several months ago about the downgrading of the debt of U.S. Treasury securities, I think it was preposterous.  I mean, despite all of the debt we have, I still think the chances of a default on U.S. debt is very, very close to zero.

But on the other hand, what do countries do when they get into these debt crises?  They tend to inflate their currencies and they basically pay back the creditors with paper currency that’s worth less than they borrowed it for.  That’s, I think, the real concern.  But in terms of these European countries, look, I think Greece may only be the tip of this iceberg and that you could see other countries like Italy having to technically default on their debt.

What I’m saying is, investors beware.  These are not as fail safe of investments as people thought they were when they bought them; whether it was two years ago, five years ago, or 10 years ago.

 Wade Dokken:      Well, I agree and I don’t think the Euro will either succeed or not succeed.  It will succeed if there is true flexibility, and I don’t think there is, so I don’t think it will.

 Stephen Moore:    Wade, this last point is that this ties back into what we started with about the Super Committee and so on.  We can see through the windshield where we’re headed and we’re headed in a Europe direction in the United States with these big entitlement programs like Social Security and Medicare, it’s just that we’re not as far down the path as many of these other countries are.

We have an opportunity to turn this ship around before we do hit the iceberg, and that’s the real question is whether we’ll get serious about this.  That’s why I do think that the Super Committee matters.  It’s almost of symbolic importance to prove that yes, Democrats and Republicans in Washington can sit down and at the very least, Wade, agree to cut the first trillion dollars of debt with 10 trillion in the forecast over the next 10 years.  If we can’t cut the first trillion dollars of debt, how in the world are we going to get to the real hard decisions?

 Wade Dokken:      But we won’t.

Alright, we have a big thing in two weeks and we’ll probably talk then.

 Stephen Moore:    Okay.  See you soon.

 Wade Dokken:      That’s very much.

 Stephen Moore:    Take care.

 

 

Wade Dokken:      This is Wade Dokken, Co-President of WealthVest Marketing.  Again, we’re very fortunate to have Stephen Moore as a commentator on All Things Political and All Things Economic today.

 

Good morning, Steve.

 

Stephen Moore:    Hey Wade, great to be with you.

 

Wade Dokken:      I think that although what’s in the news is, of course, Governor Perry drunk on his speech and Herman Cain, not a hoper but a groper, but what is actually more interesting about the two is not those peccadillo’s, which really don’t affect anything, but like Steve Forbes a decade ago; both of these guys are trying to come out with tax plans which flatten the tax and remove accountants and accounting from the core of investment and decisions.

 

I’d really love to explore that because maybe with everything else, the time is now.  Can we explore that first?

 

Stephen Moore:    Yeah, let’s do that.  Let me actually just start with what you started on because I think all of these allegations against Herman Cain, and the fact that sometimes it looks like Rick Perry was drinking before these debates is of consequence here because a week ago – I’m just trying to remember the exact date. 

 

About exactly a week ago, Wade, the National Polls came out that had, believe it or not, Herman Cain in first place, slightly ahead of Mitt Romney in the National Polls.

 

The polls in Iowa, which are crucial, had Herman Cain with a nice little lead over the rest of the pack, so there was incredible momentum there for Herman Cain going into this week, and these allegations; you can’t separate these from the policies because they have clearly kind of slammed the brakes on the progress.

 

I know nothing about these allegations.  I don’t know what’s true.  I don’t know what’s not true, but I do know Wade, that his handling of these allegations has been really piss-poor.  He has not looked professional.  He has not looked presidential.  He’s made one state that he had to kind of back off on it – “Oh this never happened.  Oh maybe there was one thing.” 

 

That’s not good when you’re running for President.  He should have come out with this right from the start.  In other words, months ago when he started his campaign, he should have revealed these kinds of things because they always come out and it looks like there was a bit of a cover-up.

 

I want to say that because I think that it has deterred his ability to get his message across on things like 999.  The same thing with Governor Perry; the fact that he looks so poor in these debates, detracts from his message bit, so with that said, what is exciting is that you do have these two Presidential candidates out there with very bold plans. 

 

The 999 Plan, which we talked a little bit about when we had this conversation, is 9% sales tax, 9% corporate VAT tax.  It’s a value added tax Wade.  That is on not just the profits, but also on the wages and salaries of workers, because employees are part of value added, and then a 9% personal income tax rate with all of the deductions gone.

 

I think that would be huge for the economy, if we could get it done.  I think one of the reasons why Herman Cain was rising in the polls is because especially among Republican primary voters, the idea of just blowing up the tax system and starting over is a very, very popular idea.

 

So then, Rick Perry a week later, which was 10 days ago, came out with his 20% optional flat tax.  I think that has a lot of value to it too.  It would get rid of virtually all of the deductions and get the rates down – zero capital gains, zero dividends, and zero estate tax.  It gets rid of the double tax on saving and investment.  That’s a very popular issue and idea with Republican voters as well. So that’s a healthy and substant debate that the Republicans are having on how to fix the tax system.

 

I don’t know where this is headed.  It’s interesting – I think almost all of the Republican candidates now have come out with very ambitious tax overall plans.  The only one that hasn’t is Mitt Romney.  Romney has been kind of skirting the issue a little bit.

 

He’s saying, “Oh well, I’m in favor of the latter system,” but he hasn’t really said how that would take shape.  In fact, if you look at his plan – and it’s important to understand his plan because he is, right now I think the big front runner in terms of the chance of him winning the primary.  His plan actually would not reduce the rates at the top, but would reduce lower rates.

 

As a supplysider, I don’t see a huge value in that.  It’s like a joke that we made at the Wall Street Journal, is “He wants to cut the capital gains tax for everybody except those people who have capital gains.”

 

So that’s a bit problematic, although I’ve talked to Mitt Romney about this and I think that he’s open-minded to doing something more ambitious, but he just won’t tell us what that is.

 

The bottom line here, Wade is I do think if the Republicans win the Presidency in 2012, one of the top priorities of a Republican president – and if a Republican wins the White House they almost certainly will have a Republican in Congress – will be to do some pretty bold tax reforms that get rid of the pollution and lower the rates.

 

Wade Dokken:      So let’s just drill down a little bit.  The way I look at it – I actually am very fond of reducing [5:59.9] rates, but I think most Americans see that reduction as a reduction in the overall receipts of the Federal Government.  I don’t think a flat tax necessarily accomplishes that.  A spending policy accomplishes that, not a tax policy.

 

The only way you get a flat tax, assuming that you end up targeting the same amount of revenue or more revenue, depending on what the needs are, is you have to get rid of preferences.

 

I’d like to understand what you think are the preferences that really go away in Cain’s proposal or Perry’s proposal.

 

Stephen Moore:    Great question and I do believe that – first of all, let’s go back to 1986 – that wasn’t so long ago.  We did this.  We did something, I think was very pro growth, very anti-corruption, and anti-crony capitalism, and anti-special interest group when we lowered the tax rate from 50% down to 28%.  But at the same time, we got rid of huge numbers of special interest loop holes, and that was done Wade, remember on a revenue neutral basis.  That is, every dollar that was lost from lower tax rates was regained by getting rid of the tax loop holes.

 

I sincerely believe, 25 years later, it’s time to do that again because what’s happened over the ensuing 25 years, Wade, is we keep adding more and more loop holes to the tax system because that’s just the way the political tax system works.  So I firmly believe, in my heart, that there is room for a deal here where Democrats say, “Look, let’s get rid of these loop holes,” and Republicans say, “Well do that if you will lower rates a bit.  So I think there’s a deal in the offing.

 

Then the question you raised is the critical one – the drill down issue is what do you get rid of?  I think you can get rid of a lot of the green subsidies that Republicans have no interest in and haven’t really accomplished a whole lot.  I think there’s a lot of talk of getting rid of potentially the mortgage deduction and potentially the state and local…

 

Wade Dokken:      Stop on the energy one.

 

Stephen Moore:    Okay.

 

Wade Dokken:      So why only point out the tax subsidy that is preferred by the left, why not point out the energy subsidy…?

 

Stephen Moore:    No, no, no that’s a fair point, so that’s where I was getting.  I mean, the mortgage deduction; that one is…

 

Wade Dokken:      Let’s stay on energy for a second.

 

Stephen Moore:    Okay.  Well, which ones are you talking about?

 

Wade Dokken:      Well, what about the remaining oil preferences or the [8:44.5] preferences?

 

Stephen Moore:    Wade, I think those should go.  To the extent you have illegitimate tax preferences to the oil industry; I am all in favor of getting rid of that.  No question about it, and so that should go too.  An energy policy, we should just have a level playing field.  I’m in favor of getting rid of every subsidy that goes to solar, wind, nuclear, oil, coal – all of those subsidies in a perfect world would go away.  I agree with you entirely, but the point I was making is there are these other big ones that are things like mortgage, charity…

 

Wade Dokken:      I’ll get those.  There are cross-subsidies, right?  You bring up the poster child, which actually is not a huge number, but then you have the external impact numbers; not unlike the acid rain or how do you feel about the lack of cost structure for those externalities?

 

Stephen Moore:    That’s a good point, and by the way, one of the things that’s interesting about almost all of these Republican proposals is they move the tax space – and I should have made this point at the outset.  They move the tax base towards a consumption model.  In other words, what you’re taxing under the flat tax, for the most part, and even under the Herman Cain plan, for the most part, is you’re taking consumption and not savings investment.

 

Why that’s interesting is, first of all, consumption in my opinion, is what we should tax because savings investment are the building blocks to the economy and right now we double and triple tax saving investment, and that’s why we have too little of it.

 

The point that you’re getting at is we have externalities – too much use of oil, gas, and so on that cause pollution – greenhouse gas and so on.  Well, one of the virtues of a consumption tax, is you’re actually taxing that.  A consumption tax is just a form of a carbon tax.  A carbon tax is just a tax on the people’s consumption of energy, so that’s kind of interesting.

 

One of the things I’ve been thinking about is we’ve got to convince the liberals and the greens that taxing consumption is a way of reducing pollution.

 

Wade Dokken:      So then you were going to move to the mortgage deduction.

 

Stephen Moore:    That’s the toughest one.  That’s huge.  That’s a huge one, but it’s also the hardest one to get rid of because that has a massive housing constituency behind it.   And not homeowners; I’m talking about realtors, homebuilders, mortgage banks; those are the people that feel like this is just life and death to them.  I don’t believe that to be true.

 

I think, “Look, if you can get the tax rate down to 18-20%, then the value of these deductions isn’t that important anyway because you’re only getting 18 or 20 cents on the dollar.  But yeah, that’s going to be really difficult to do.  The next big one is the state and local deduction.

 

Wade Dokken:      Let’s stay on that one for a second.

 

Stephen Moore:    Okay.  Sure.

 

Wade Dokken:      I think intellectually that the home mortgages, in my opinion, are the most important one to get rid of.

 

Stephen Moore:    I agree.  You know why?  Because as a country, as a nation, we’ve gone through the last…

 

Wade Dokken:      We over invest in things that don’t produce.

 

Stephen Moore:    Yes.  We over invest in housing, swimming pools, and things like that and we under invest in things like factories and things that put Americans to work.

 

Wade Dokken:      I mean our houses don’t end up making Iphones.

 

Stephen Moore:    That’s right.  Well put.

 

Wade Dokken:      I think your point is incredibly good, which is if you push the marginal down – let’s just say parenthetically Perry’s 20 or Forbes’ 20 before that, so number one, the value of the deduction is much less.  Number two is, the value of the deduction is really predicated on an assumption that prices are rising.  If Americans had made a big shift of thinking less that the prices are rising and they’re willing to leverage their house less, so frankly, debt on a flat appreciating asset is not a smart thing anyway.  But look what we happen if we dropped that.

 

Stephen Moore:    Did you say debt on an appreciating asset?

 

Wade Dokken:      On a non-appreciating asset.

 

Stephen Moore:    I was going to say, the real problem in the market is people in debt on depreciating assets.  That’s how we got into this crisis; everybody took out these huge mortgages on houses they couldn’t even afford to pay the mortgage, but they just figured the asset is going to appreciate the value, and therein lies the housing crisis, right?

 

Wade Dokken:      I think the next one is health insurance.

 

Stephen Moore:    Yeah, and that one is the toughest because it’s very difficult to take away the health insurance deduction because it’s easy for unions and so on, that have negotiated very generous health plans over the last several decades; they’re going to say, “Whoa, this is a problem.  You’re taking away a fringe benefit of mine by taking away the tax deduction.”

 

Now from an economics standpoint, I believe very strongly the right thing to do is to treat healthcare benefits as form of compensation, right?  If I pay you Wade, and you’re working for me; if I pay you $10 an hour that’s taxed, but if I pay you $7 an hour in wage and salary and then $3 in healthcare benefits, the healthcare benefits are not taxed but the wage and salary is.  That doesn’t make a lot of sense; it’s all compensation to the worker.

 

It’s the right thing to do economically, but I have to admit, it’s a tough sell because the opponents are going to say, “You’re taking away your health plan.”

 

Wade Dokken:      But the problem is that the corporate deductibility, it has to be a significant contributing factor to the escalation of healthcare costs.

 

Stephen Moore:    Yes.  Definitely.  And by the way, I think if you didn’t have that deduction, it’s not like people would lose their health benefits.  I think two things would happen.  I think one is, over time, we would move away from an employer sponsored health system – and I’ve always been in favor of that.  You and I have talked about that.

 

Companies should be making products and not being healthcare companies.  You know, the joke here today is that General Motors doesn’t make cars, it provides healthcare, and so that’s been a problem with our competitiveness.

 

The other thing that it would do is it would probably lead to less of a system where healthcare is paid for by third parties.  People would have more catastrophic coverage, but things they could afford to be paid for out of pocket would be paid for out of pocket, and that would, I think, lead to more sensible healthcare decisions by everyone.

 

The third big one though is the state and local deductions – municipal bonds and things like that.  It’s never made sense to me that you should be able to deduct your state and local taxes from your federal taxes.  All we do then is reward people in high tax states like California and New York.  Probably half of the people listening to this show are from California and New York, but on the other hand, if you live in New Hampshire where you have very lean public services, you don’t get the deductions that people in high tax states do.

 

That one, I think is more doable, and in any case, if we could get rid of those three; that’s about half of the revenue, just those three deductions right there.

 

Wade Dokken:      More doable.  So you’re saying it’s more doable and you’re looking at a 45-member Congressional district in California, and a 38-member Congressional in New York, okay.

 

Stephen Moore:    No, that’s a great point.  In fact, just a few years ago, we actually made state sales taxes deductible from your Federal income taxes.  I think that one should go away, and I actually think that the deduction for municipal bonds should go away.  Now that one also, and if there are any bond traders listening to this, they are probably hyperventilating over that, but I just don’t see why we favor debt from municipalities over debt from corporations.

 

Wade Dokken:      All bonds, GO’s, and IDR’s, or only IDR’s?

 

Stephen Moore:    I think all bonds.  That’s all negotiable, but the flat tax gets rid of the deduction for all bonds.

 

Wade Dokken:      Hum.  Okay.

 

Stephen Moore:    Let me just say one thing that’s kind of interesting that I found out this week.  Now there’s a lot of talk on the corporate side of us doing the same thing; lowering the rate and getting rid of deductions.  One of the deductions that are being very seriously talked about right now to get the 35% rate maybe down somewhere between 25-30%; would be to get rid of the deduction for interest expense.

 

That would mean when corporations borrow, they would no longer be able to deduct the interest expense from the borrowing.  I am in favor of that, a) Because you can reduce the rate a lot if you do that, and b) I really believe one of the problems in corporate America today is companies are too dependent on debt and not dependent enough on equity.  There’s a bias in the tax code right now in favor of debt financing over equity financing.  Getting rid of the interest expense deduction would create neutrality between debt and equity.

 

Wade Dokken:      Well…

 

Stephen Moore:    That’s a big one right?  That’s a big deal if they change that.

 

Wade Dokken:      Well, it’s a huge deal, but if we’re going to de-leverage the society, it’s an essential one.

 

Stephen Moore:    I agree.  I totally agree.

 

Wade Dokken:      So in the backdrop of this; the reason that question intrigues me is that realistically, how many days do we have left in the Super Committee now?

 

Stephen Moore:    Well, I’m writing a piece right now on that as we speak.  Literally, I was halfway through it when I picked up the phone to make this call.  I’ve been in touch with the Republican members of the Super Committee and they have only about a week left to make a decision because they have to get the whole thing scored and voted on, under the law, the day before Thanksgiving.  So almost literally, if they don’t get this done by the end of next week, the clock probably runs out. 

 

You know, it’s amazing, I’ve spent all week talking to these members and I can’t tell you right now whether this is going to get done or not.  They’re going to be negotiating all weekend behind closed doors just to try and get a deal.  The deal that looks like its taking shape is to get the corporate rate down to maybe 28% by getting rid of some of the loop holes.  They’re talking about doing this Feldstein Plan, which is limiting your deductions on your tax form to about 3 or 4% of your adjusted gross income.  And then in exchange for that, the Democrats would agree to make the Bush tax cuts permanent.  So the tax rate wouldn’t go from 35-42% in 2013, and capital gains and dividends would stay at 15%. 

But that’s a big static revenue tax increase because limiting those deductions raises a lot of money.

 

Then on the spending side, what Republicans want is two or three big things in terms of entitlements.  One is a gradual phase-in of the retirement age – something you and I have talked a lot about.

 

Wade Dokken:      Gradual phase-in; you mean increase of the retirement age?

 

Stephen Moore:    Yeah, an increase of the retirement age.  The second would, be the changing of the benefits structure, the way we do the cost of living increase every year; changing from a wage-based to an inflation based.  That sounds like a small deal but overtime it saves a lot of money.

 

Then the third thing is just requiring more co-payments and higher premiums on Medicare, because Medicare is so indebted and headed towards bankruptcy. 

 

Wade Dokken:      Why not means testing on both of them?

 

Stephen Moore:    Yeah and there would be some component probably of a means test with respect to the premiums and the co-payments.  So in other words, higher income people would pay higher co-payments, more premiums; a bigger increase than someone with $20,000 of income.

 

Wade Dokken:      Just so our listeners know that particular one stacks up differently than people think.  The left is the one that has often been against means testing.

 

Stephen Moore:    Yes.  That’s a really important point, and it’s always been curious to me.  You would think that liberals at the Democrat table would say, “Well let’s restrict Medicare so that Warren Buffett doesn’t get it and Bill Gates doesn’t get it,” and so on.  But actually, the Democrats have resisted that because they don’t want Medicare and/or Social Security to be seen as welfare programs.  They want everybody to get it, so that it’s not defined as a low income program. 

 

My feeling is, “Look we just can’t afford this anymore.”  Folks, these are not small deficits we’re talking about.  We’re talking about 10’s of trillions of dollars of deficits in these programs over the next 75 years, and if you can change the benefit formulas just a little bit now, the savings magnify hugely in the 10 year, 20 year, 30 year, 40 year projection.  So this is about saving these programs for not just our children, but our grandchildren. 

 

Wade Dokken:      Well, I happen to disagree with the left on that.

 

Stephen Moore:    I think we’re headed there. I would bet just about anybody on this phone call that sometime in the next two, three, or four years that this is going to happen.  Just because, how else are you going to pay the bills for the program?  We just have to do this. 

 

Why in the world are we giving free health care to Warren Buffet?  It makes no sense.

 

Wade Dokken:      No, no, no.  You know we’ve got a little bit more time.

 

Stephen Moore:    By the way, one other point on this since you got me going on it.  It’s interesting; I was just looking at the numbers that came out in the census about incomes.  Do you know what the richest income group in America is today?

 

Wade Dokken:      No.

 

Stephen Moore:    People over the age of 50.

 

Wade Dokken:      Oh, the Demographic group? 

 

Stephen Moore:    Yeah.

 

Wade Dokken:      Yes, I knew that.

 

Stephen Moore:    People between 50 and 65 – because they’re at their peak earning years are the richest group.  But then people over 65; they’ve built up wealth over their lifetime.  We have this system where relatively lower income young people are paying into a system to pay benefits to relatively higher income older people.  It doesn’t make any sense when you think about it.

 

Wade Dokken:      No, it’s wrong.

 

So we have GDP’s.  So we have upper revisions and we have new GDP likely to be revised to 2.5%.

 

Stephen Moore:    Yup.

 

Wade Dokken:      Not exactly the sexiest thing in the world, but certainly pushing away from a double-dip.

 

Stephen Moore:    Yes.

 

Wade Dokken:      What do you want to say about it?

 

Stephen Moore:    Just what you said.  I think you summarized it very well.  If you had asked me a month ago I would’ve said, “I’m really worried about a double-dip recession.”  At least for now I think we’ve clearly averted that crisis.  And we’re looking in the fourth quarter of 2011, which we’re almost halfway through already; it’s looking pretty good.  I could see maybe 3% growth in the fourth quarter, which is a hell of a lot better than the zero percent we were worried about a few months ago.

 

So yeah, the economy seems to be percolating a little bit better than it was.  Obviously all this noise about what’s happening in Europe hasn’t been helping, but I’m feeling like everyone is, a little bit better about the economy, but it’s so fragile.  That’s the thing about this economy right now, Wade.  I’m always hesitant to make predictions about where things are going to be in 2012.

 

Wade Dokken:      Sure.  You wouldn’t be making any money if you didn’t make predictions.  What are you talking about?

 

Stephen Moore:    No, but economists are always wrong in these predictions.  I don’t know why you all listen to us, really, but my point is it’s such a fragile economy – you just take one of the toothpicks out of this house of cards and the whole thing could collapse very easily.  It’s a time to be cautious.  It’s a time to be cautious but I’m feeling somewhat more optimistic than I was a few weeks ago, and I think part of it is there’s a bit of a stalemate now in Washington, and that’s not such a bad thing.  It’s not such a bad thing to have a little gridlock in the system because at least for now, businesses know what the rules are.

 

Wade Dokken:      You know, we’d better mention the Feds.  So the Feds just met and they decided to take no new directional action.  What’s going on there?

 

Stephen Moore:    I’m not a real expert on the Fed.  I’m not a close Fed watcher.  I’ve had my head buried so much in this budget stuff, I don’t know if I have a great answer on that.  The bottom line is the Fed stills remains extremely accommodative.  For those of you who read the Wall Street Journal Editorial page, you know we’ve been very critical of the Fed.  We think that rates have been just held near zero for way too long, at a potential peril.

 

Here’s my worry Wade, there’s very little inflation out there right now.  There’s some but not a whole lot.  The worry is that because of all this excess money that’s been created over the last few years, that when the economy picks up, and if we do get 3% growth and consumers feel like they can go out and spend again, then I think you risk a resumption of inflation and nobody wants to see that.  That’s my worry is that the Fed has been inattentive to the consequences of all this easy money, which at some point, you’re going to get higher prices as a result of all the money that’s flashing around in this economy. 

 

Right now it’s dormant.  It’s just sitting on the sidelines because consumers are afraid to spend and businesses are afraid to spend.  If that changes, which we hope it does, then I do worry.  I’m not talking about rapid rates of inflation, but you could see the inflation rate go to 4-5% and that’s suboptimal.

 

Wade Dokken:      Although the small point is that my business would boom in that scenario.

 

Stephen Moore:    Sure.

 

Wade Dokken:      Okay, I’m going to ask you one more question, which neither one of us are experts on, but I read countless stories and I’m still confused.

 

So what exactly does Greece hope to accomplish and what is their policy?  They agreed to a certain set of circumstances then they put it up to a publicite, which I can’t even imagine it passing.  So what will happen?

 

Stephen Moore:    Well, you know if you read our editorial yesterday, which I had a hand in, I actually think this idea of letting the Greek citizens decide is not a bad thing.  I think this idea that Europe should be run by Brussels or by these elites is not healthy for a Democratic country.  The Greek people are going to have to decide for themselves on this, and you’re right, it may be that they vote down this rescue package, but who should decide that?  Should it be the elites in Brussels or should the Greek citizens? 

 

I know that this has caused a lot of heartburn in the markets, no question about it, but ultimately, it’s the elites that got these countries into this mess in the first place and so, I think they’re going to have a publicite.  Lord knows who they’re going to vote on it.  You never know.

 

Remember about five years ago that the French voted “no” on this – they wanted a kind of super governing authority and France voted no.  I think ultimately, it’s not a bad thing, by the way, that these bond holders that bought this Greek that are going to take a haircut.  This is a de facto default on the debt.  It’s not technically a default, but it’s a de facto default.  My feeling about this overall is people who own government bonds should be on warning that these countries are going to have a tough time paying their debts.

 

It’s just that simple.  They have made promises to spend money on programs they can’t afford.  It’s what we’ve been talking about for the last half-hour.

 

Wade Dokken:      You’re right.  You have to be right.  Why should not companies with Italy’s, Greece’s, America’s, Japan’s or anybody else’s level of leverage – why shouldn’t that be fully priced into the interest rates?

 

Stephen Moore:    And it’s not.  It’s not.  That’s the thing that’s so amazing to me.  Look, I believe that the list of a default on the U.S. Treasuries – when we talked several months ago about the downgrading of the debt of U.S. Treasury securities, I think it was preposterous.  I mean, despite all of the debt we have, I still think the chances of a default on U.S. debt is very, very close to zero. 

 

But on the other hand, what do countries do when they get into these debt crises?  They tend to inflate their currencies and they basically pay back the creditors with paper currency that’s worth less than they borrowed it for.  That’s, I think, the real concern.  But in terms of these European countries, look, I think Greece may only be the tip of this iceberg and that you could see other countries like Italy having to technically default on their debt.

 

What I’m saying is, investors beware.  These are not as fail safe of investments as people thought they were when they bought them; whether it was two years ago, five years ago, or 10 years ago.

 

Wade Dokken:      Well, I agree and I don’t think the Euro will either succeed or not succeed.  It will succeed if there is true flexibility, and I don’t think there is, so I don’t think it will.

 

Stephen Moore:    Wade, this last point is that this ties back into what we started with about the Super Committee and so on.  We can see through the windshield where we’re headed and we’re headed in a Europe direction in the United States with these big entitlement programs like Social Security and Medicare, it’s just that we’re not as far down the path as many of these other countries are. 


We have an opportunity to turn this ship around before we do hit the iceberg, and that’s the real question is whether we’ll get serious about this.  That’s why I do think that the Super Committee matters.  It’s almost of symbolic importance to prove that yes, Democrats and Republicans in Washington can sit down and at the very least, Wade, agree to cut the first trillion dollars of debt with 10 trillion in the forecast over the next 10 years.  If we can’t cut the first trillion dollars of debt, how in the world are we going to get to the real hard decisions?

 

Wade Dokken:      But we won’t.

 

Alright, we have a big thing in two weeks and we’ll probably talk then.

 

Stephen Moore:    Okay.  See you soon.

 

Wade Dokken:      That’s very much.

 

Stephen Moore:    Take care.