DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
IN FOCUS: Forget the payroll tax cut debate, Over 60 other tax cuts expire in 2012
STEVE FORBES: Well David, if you want to turn a flat economy into a fat economy, the flat tax is that way to do it. It lowers the price and burden on good things like productive work, risk taking and success. It tracks foreign capital. We do not have to spend 6.5 billion hours a year filling out tax forms and it removes a major source of political corruption. Half of the lobbying in Washington revolves around it. It also corrupts the spirit of the American people. They do not know what the rules are. Everyone is tempted to push the envelope. Bad all around. Get rid of it. Start over.
KYM MCNICHOLAS: You know, I do not agree with the flat tax at all. Especially with Steve's plan. I don't understand how he can call his plan a flat tax, because a flat tax is as such a flat tax; no exemptions, no deductions. But I do think we do need exemptions and deductions, not just for the lower income bracket. Steve, your plan is all about with the low income bracket giving them exemptions, deductions possibly for some parents with young children. But it is really still going to hurt the middle class. They are the ones who need these exemptions because the middle class is hurting right now in today's economy. They are losing their jobs, their incomes are falling and their underwater homes are worth less than the mortgages themselves. They cannot afford a flat tax and to be paying the same rate as the rich.
ELIZABETH MACDONALD: Steve is right. It is past time to get a flat tax in this country. You know, it would help the middle class. The middle class tends to get roped into a very complicated system, that even IRS workers themselves have told me, they do not like the current tax system because it invites corruption and tax evasion. So that is how the middle class gets hurt, because they tend to get dinged with all sorts of complexities. And I will tell you something. When you see the former communist states in Eastern Europe adopting a flat tax and we are left with this Byzantine fishing pile of a code that has turned the IRS into America's Museum of Mass Confusion, you have to say if the former Soviet satellite states get it, why don't we? Even Iraq has a flat tax.
MORGAN BRENNAN: I am not going to disagree that we need a dire overhaul of the tax code, and I do in concept like the idea of a flat tax but what worries me is that 18.5 percent of our GDP is federal tax revenues right now and all of the flat tax proposals we have out there run the risk of falling short of that number. I feel like unless we do some major cutting to our spending or maybe supplement it with a modest fat tax, we are going to put our debt burden further into the hole.
RICK UNGAR: You may be surprised, but I do not have the allergy to the flat tax that you might expect. Look the tax code, or as I like to call it the 'Special Interest Bro Code,' is completely broken. It is useless. Now, what I will give Steve credit for is he has proposed a flat tax. My goodness he is the godfather of the flat tax. But he has made real efforts to find ways to bring the exemptions levels up so that middle class and lower income earners will not be hurt quite as bad. It needs a little bit more work. But if that aspect of it is covered, there is something to it. Bear in mind however, the minute we get it, congress will start fooling around with it to either lower it or add new breaks for special interest.
BILL BALDWIN: I think it is dry for simplicity. Steve Forbes is unfortunately confused too; entirely separate criminal activities by Congress. Number one, it is junking up the tax code with all of these weird visions for friends. The second thing you started talking about David was this, the expirations. That is a different game. That has to do with budget shenanigans, pretending that the budget is balanced because like Medicare costs are automatically to go down on March 1st. No they aren't!
Hedge funds investing in real estate
KYM MCNICHOLAS: They are right. The fact that hedge funds are actually betting on a rebound is a really good indication. Also, investors across the board are betting on it. They have driven up homebuilders shares 30 percent since the end of the third quarter. We also have the number of Americans who have signed new contracts to buy new homes in November, up 7 percent to the highest level in more than a year and a half. An amazing indication that we have hit rock bottom and are on our way back up.
RICK UNGAR: You know I would like to believe it. Like Kym, I live in California and I would love to see the turnaround. I think we are still a couple of years away. I think it is great news that these hedge funds are getting into it. They are speculators, it shows there is some interest in the market, but I think we are looking at, at the earliest 2014.
MORGAN BRENNAN: I land right smack dab in the middle on this one. I have to say there is a difference between hitting bottom and rebound. It depends on if you are an investor or a homeowner in this particular situation. I do think that we are bouncing along the bottom at this point, as far as the housing market is concerned. I think like Rick said we are going to bounce along the bottom for the next couple of years, so homeowners shouldn't necessarily get their hopes up that the value of their homes is going to come back up. But that being said, if you are a hedge fund investor or a real estate investor, this is the beginning of a rebound because you are investing in distressed properties at discounted prices and you are investing in multi-families which the rental market is soaring and rebounding.
STEVE FORBES: Well, we will get a little modest improvement next year David, but form a very pitifully low level. The fact of the matter is, we are not going to get a fundamental improvement until Barack Obama gets out of the White House. Then we get a housing improvement. Those who are hoping otherwise are living in glass houses. The fact of the matter is, the mortgage market is still a mess. The government has mucked it up. Fannie and Freddie incredibly, are hurting the housing market by making it impossible for people or making mortgage payment to get refinancing because their housing prices are down. So it is a bad circle.
BILL BALDWIN: I am not going to defend Fannie and Freddie, but listen. Let's get back to the central point: Hedge funds buying into real estate supposedly. Nobody ever got rich trying to follow a hedge fund. These guys are just shooting craps with other people's money. At any given moment in this casino you have half the hedge funds betting on black and half the hedge funds betting on red and they cancel each other out. Half of them are right, half of them are wrong. They are just shooting craps and half of them will get a bonus for being right.
ELIZABETH MACDONALD: I think that it will muddle along. I think Bill is right. You know, the Wall Street crowd is the same crowd that has been calling about it since 2009. I think the uncertain markets you see at bottom, certainly places like Phoenix where it has dropped 60 percent, but this is the same crowd that said there is no nationwide crash coming in housing. They are relying on faulty NAR data and also they are not taking into account the home equity lines of credit that are dragging more homes into foreclosure. And the shadow inventory is understated by 50 percent, the official shadow inventory. There is still certain markets though that are rebounding, but some are dead wood right now and you won't want to go near it there is a blue chip company operating in the area.
FLIPSIDE: Americans saving money from online shopping bargains is bad for economy in the short term
MORGAN BRENNAN: As much as I love online shopping, I did it this year myself, I do think it is detrimental at least in the short term to brick and mortar stores and to the economy. Especially with small business, it has potential to effect how many mainstream shops hire for the holiday season. That means fewer jobs. As you mentioned, Sears we are seeing closings there, we saw the last filings in Boston this week. But even more interesting, I think this has a huge effect on state budgets. Because online vendors, there is a loophole, online vendors do not have to pay sales tax to states that they do not have a presence in. We are seeing estimates of up to $23 billion that will be lost in 2012 because of that loophole. That is money that could go back to education and health care services within these states.
STEVE FORBES: The whole thing about productivity David, is you learn to get more from less resources, which frees up resources to expand the economy. Stores that are smart realize things in terms of return, people get a better experience going to the brick and mortar store than they do online. So it is win-win all around. People have more money to spend, they have more time, which is the most precious commodity there is and then you get innovations like Apple. Everyone said apple would flop at retailing, now it is the most successful retailer in America in terms of sales per square foot.
KYM MCNICHOLAS: You know Steve, you said you are going to send me your flat tax book, I am going to send you something in return: a moose head or a bear head from the Western Boat Shop in California, which is a mom and pop shop that is being forced out of business because more people are buying their fishing poles, their guns and ammo online. About a dozen people are out of work because this small mom and pop shop in our community is going out of business. On a grander scale, more people are losing their jobs. Borders for example, more than 11,000 people out of work because Amazon has killed their business. What about blockbuster closing all of their outlets, 60,000 people out of work. It is killing our communities.
ELIZABETH MACDONALD: It is a great thing. Besides, these online stores have to have brick and mortar shops or warehouses to basically get their good out of, to ship. You know, the smart stores like Target have great websites. Walmart has a great website. As for the argument that it is hurting the small brick and mortar shop, they are also folding themselves up to work for these big companies that know how to do it right. Sears got it wrong, because the stores look like the Soviet Union circa 1974 because they weren't investing in it. They should have gotten rid of Eddie Lampert a while ago. He is not a retail guy.
RICK UNGAR: Bottom line is, it is a mute question. You cannot stop progress. Online sales are here to stay like it or not, with the exception of maybe clothing. And Steve, I cannot believe it, twice in one show I am agreeing with Steve. Steve hit it right on the head. It is scaring me, we better get to the New Year quick something is going on.
INFORMER: What are the best stocks for 2012?
BILL BALDWIN: ZEBRA TECHNOLOGIES
ELIZABETH MACDONALD: PIMCO (PAUCX)
MORGAN BRENNAN: LINN ENERGY (LINE)
KYM MCNICHOLAS: CATERPILLAR (CAT)
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