One Giant Government Leap Backwards

The message from President Obama's health-care speech yesterday is game on—jam it through with virtually nothing for Republicans. It's more of the same old, same old. In other words, full-speed ahead on massive entitlement spending; tax hikes on investors, businesses, and individuals; and over-regulating government bureaucratic boards to control prices, ration care, slam the insurance companies, and, frankly, redistribute income.

The Obama administration is basically taking a giant government step that the country doesn't want it to take.

In particular, I want to note that the 2.9 percent payroll tax hike on all forms of investment, on top of the repeal of the Bush tax cuts, could be very damaging for the stock market, jobs, and the economy next year. The reason is that when you tax capital, you are taxing workers, wages, and growth. And if you tax something more, you're going to get less of it across the board.

Right now, in my judgment, the stock market is struggling with these high-tax threats and consequences. Investors are peering into a future that unfortunately is fraught with uncertainty.

By the way, a government takeover of health care—which is essentially what Obamacare represents—will cripple one of our most productive job-creating sectors. Private health care produced almost 700,000 new jobs in the last two terrible years, all while overall payrolls fell by 7.5 million. Think about that.

Politically, the country is opposed to this. Conservatives, tea partiers, independents, you name it. The country does not want reconciliation with a mere 51 votes resulting in a takeover of nearly 20 percent of the economy.

A recent Gallup poll shows that 76 percent of voters believe their health insurance is either good or excellent. The message? Folks just don't want Uncle Sam to get between them and their doctors, or between them and their health-care insurance.

This new New Deal, or new Great Society—or whatever it is—is the government selling a product that the rest of the country doesn't want to buy. But that doesn't mean it won't pass on a 51-vote majority. It could. That's the uncertainty investors are facing. It's no surprise that health care was the worst-performing stock market sector in the hours following Obama's speech.

On a more optimistic note, the cyclical recovery continues. The ISM non-manufacturing services report was very strong, including a hike in jobs. And the Fed's latest beige book did show an improving economy.

So we're still in a cyclical recovery, at least for this year. But to use Art Laffer's phrase, the question is whether a tax-and-spend train wreck might hit us next year. Will it? I just don't know.

What I do hope is that a full-blown political revolution come November will help us get out of this current mess. Yes, I'm trying to be an optimist to the end. I just hope it's not the bitter end.