Steve Beaman, self-made millionaire and business man turned financial educator, explains how Trump’s economic plan will reverse America’s flagging economy by putting money back into the hands of private citizens where it belongs.
Starting out as a retail stock broker for E.F. Hutton in the 1980’s, Steve eventually joined with “two very bright partners” to start Chicago Investment Analytics which became the premier provider of investment research and equity research in the country through the 1990s. Today, Steve is the Chairman of the Society to Advance Financial Education, or “SAFE”, a not-for-profit geared and devoted both toward promoting and providing financial education to regular Americans. He has 30 years of experience in the financial industry and recently spoke to Politichicks about how to achieve financial prosperity.
In the following Q&A, Steve explains why Trump’s economic plan will stimulate the stagnant U.S. economy by cutting personal and business taxes, eliminating sneaky tax code benefits for elite financial gurus, and stopping the massive bureaucratic regulations choking small business.
Steve also explains what is really killing small businesses; why Obamacare will be repealed no matter who’s president; the real threat to the minimum wage; what killed small banks; and what to watch for if the FED raises rates.
ON TRUMP’S ECONOMIC PLAN
Q: What do you think of Trump’s economic plan unveiled recently in Detroit? What are the good points about Trump’s economic plan and what do you think the bad points about it are, if any?
A: “We have a nation that is growing at roughly two to two and a half percent a year and has been for about eight years. The productivity of Americans is not growing at all. In fact, it’s shrinking. The labor participation rate is in the mid 60s which is the lowest point since the 1970s. So we have an economy that is growing but stagnant, if you will.
“To get the economy going we need some measure of stimulus. What’s the best way to do that? Tax cuts. [Trump] is proposing cutting corporate taxes from 35% down to 15% across the board, small, medium and large [business]. That is very stimulus-oriented. And he’s talking about cutting the individual tax rates down from the current 39 to 25 percent. That’s a very stimulating — putting money back in the hands of the consumers. Those are the two big tax cuts.”
Q: So what is your evaluation of the plans Trump has laid out, to the degree to which we have specificity on it? What do you think is going to happen if he puts in these various tax cuts, and these different changes to regulations? Do you think it will do what he says, which is stimulate the economy? Do you approve mostly of what Trump is saying?
A: “I totally approve of it. And I do think that when you let people have more of their money, it is stimulus. We saw it in the ‘60s when John Kennedy did it; we saw it in the ‘80s when Ronald Reagan did it. That is common sense. When you give people more of their money, you’ll build the economy. They’ll feel better about themselves, the wealth index expands, the confidence index expands, and so all of the triggers to having that higher growth economy are in play.”
“Now, [Trump] also talking about simplification of the tax code and eliminating some of the egregious situations like what is called the “carried interest deduction” which is a deduction that the major global hedge funds use to hide income. So he’s talked about eliminating that.”
Q: Tell me a little bit more about it. For regular Americans who don’t participate in hedge funds, I’m sure there are a lot of people like me who don’t understand what a hedge fund is and why the “carried interest deduction” is such a boon to hedge fund managers.
A: “The ‘carried interest deduction’ allows them not to pay taxes on monies that is not repatriated to the U.S. So they keep their money overseas. They don’t pay taxes. By the way that’s also true of corporations. When they [corporations] make money overseas they don’t pay taxes until they repatriate the money to the U.S. There are several trillion dollars of American corporate cash sitting overseas right now….The Trump plan gives them an incentive to bring that cash back. [This] is further stimulus to the economy and that would be getting that growth from two, two and a half percent up to four, five percent.
“Now the argument that is made is that will increase the deficits and debts. The reality of it is the amount of money brought into the government is not simply a function of tax rate; it’s a function of the size of the economy. So even though you are cutting tax rates, the government will actually make more as the economy [grows]. Right now we’re growing at about a 300 billion dollar a year rate, maybe a little more. Let’s call it 400. Under the Trump plan, if the numbers are historically accurate, meaning that we would keep what we’ve done in the past, we could see one and a half to two trillion dollars a year of growth. So the government draws that tax rate from a much bigger pool of money. That was part of Trump’s Detroit speech and I’m sorry to continue but it’s so very important that it gets me jumping up and down.
“[Trump’s plan] is also about stopping the regulatory machine that is Washington….Even though we have the highest tax rates in the developed world, the bigger problem for business is regulation. [It is] one of the reasons companies move overseas right now. We are regulating small business out of existence. [Trump is] talking about putting a moratorium on all regulation and cutting back regulations that have been put in recently. And that is stimulative.”
Q: Let’s assume a Trump presidency. If Trump is able to repeal the Affordable Care Act, the official name for Obamacare, do you think that would be a good thing overall for our economy?
A: “Obamacare is imploding on its own. It is imploding across the country. The exchanges that were set up are going bankrupt one after the other. Insurance rates are going up systemically. “And the Affordable Care Act … incentivizes business to hire part-time people rather than full-time people. If you throw out that law, you eliminate that disincentive to hire full-time people.
“I think no matter who is president, we’re going to have to eliminate that law and it will be replaced with something. I think we’ve almost crossed the rubicon in people thinking that health care is a right not a privilege. So, I think no matter’s who’s president, that they will be enormous pressure to come up with some kind of basic health insurance for everybody, think Medicare where it’s universal but it is not this disaster that is the Affordable Care Act.”
Q: But then aren’t we just comparing red apples to green apples? If we’re going to have a centralized government in charge of Obamacare are we just going to rename it and call it Medicare 2.0? I understand why we should repeal it because it’s imploding and hurting people and private insurance companies badly, but why should we repeal it and then replace it with the same type of thing?
Why not do something like health care savings accounts? Why don’t we use a private health care option for people to manage their own health care?
A: “That would be my preference by 100 to 1 because that would put, again, a governor on the medical system that if you’re not providing at a fair price with high quality and good delivery there’s competition. Yes, I’m more into let’s open up state regulations so that you don’t have this prohibition from selling insurance across state lines. Let’s do the free market solution that would give overall a better health care system. The only reason I bring up the other is that I do wonder sometimes if we haven’t crossed the rubicon on that. I don’t know that the American population will vote for a private solution to health care at this time. I hope they will and if that argument can be made cogently and strongly enough that people will accept it because it is the better care system.”
KILLING SMALL BANKS
Q: Small businesses are being choked with regulations that make it impossible for someone to run any kind of a business. Are there any specifics when you look at things you say these type of regulation or this in particular is a burden on business?
A: “Let me be very specific. Following the market meltdown of 2008, the Obama Administration together with the Democratic Congress put in the Dodd-Frank legislation to regulate banking. What they did is they raised capital requirements, raised regulatory burdens on banks to the point where small banks no longer exist. We’ve concentrated the assets more than ever at Bank of America, J.P. Morgan Chase, and Goldman Sachs.”
Q: So Dodd-Frank killed small banks and made big banks even bigger?
A: “Yes, I wouldn’t say that it specifically killed them but it was a big part of creating the overall situation.
THE REAL THREAT TO THE MINIMUM WAGE
A: “Let’s also realize that, non-economically but just in terms of strategic change, when we face a technological revolution like you’ve never seen, that is also creating a situation which jobs aren’t being created because technology is doing the job. And that is a freight train that is coming down the tracks we can’t stop. Globalization is affecting things. I would argue that this technology thing that we are in now will supersede all of this over the next ten to twenty years.”
Q: Having machines do the work that men and women used to do. And how we are going to evolve.
A: “Absolutely. Look at the labor reduction in operating a train, in operating a plane, or now driverless cars, in a short time you can say goodbye to truck drivers, cab drivers, all of the traditional jobs that people have done are now being replaced by machines. In fast food look at all the kiosks being put in.’
Q: I have heard that Trump wants to raise the minimum wage. He wants to raise it up to $10 dollars an hour and Hillary wants to raise it to $15 an hour. How will raising the minimum wage help organizations like McDonald’s and others that rely on unskilled labor? If they are going to pay more for unskilled labor and to give people their first jobs, how is that going to help people get jobs and how is that going to help companies with their costs?
A: “It’s interesting you bring it up. I just published an article on my website called the ‘Fallacy of the Minimum Wage.’ Minimum wage has always been screamed about by business….The reality is in the past that minimum wage increases have not negatively affected the economy….But here’s the difference—Today, the low end of labor doesn’t compete against other people. You compete against the machine. As you raise minimum wage up to a certain point, and $15 [dollars an hour] is clearly at that point, it will start to materially incentivize companies to say ‘well, I can put in a machine a lot cheaper than that.’ ”[I]n Walmart … they now have automated check out lanes. You see it in grocery stores ….So across the board as we now look at what I call 20th century solutions to 21st century problems they’re not going to work like they have in the past.”
Q: So are you saying that raising the minimum wage is a 20th century solution to a 21st century problem?
A: “Yes. Absolutely.”
Q: Getting back to the proposal for raising the minim wage, then why do it? Why is Trump wanting to raise the minimum wage? What does that get him?
Q: Democrats believe the government needs to help Americans invest their money in retirement plans like social security because they believe we’re really not smart enough to know how to invest.
So if Big Mother Hillary, Mother Government, says “no, I have to manage your money for you,” how do you explain the concept of freedom and having the right to use your own money and how that grows the economy? How do you answer, or defend against, the Hillary ideology that says in essence “well, you’re not smart enough to spend your own money”?
A: “Let me go a little bit off the wall here on this. First of all, I don’t want Hillary managing my money either. (Laughs) We had a seismic shift in the late ‘70s when we went from a ‘defined benefit retirement plan’ to what is called a ‘defined contribution plan.’ 401Ks, IRAs, and Keoghs. What happened is we shoved the responsibility of managing retirement funds on to the back of the people and did not provide through our academic systems the education they needed to do it. So in that regard I’m kind of on board with the problem. I get it.”
Q: Can you explain what you mean about “defined benefits” versus the “defined contributions?”
A: “This was done, these were passed under a group of laws called ERISA. What happened was companies, because the markets had such poor performance in the ‘70s, companies were really being hurt because people used to get a pension based on the percentage of last years of their lives. For example, a lifetime pension based on 80% of the average of your last five years’ wages. It is a ‘defined benefit.’ What happened was we shifted that to say, instead of that, we’re going to pay you the money and we’re going to contribute money to you and you can manage it and live off of what you earn. On paper it looks great and financially it looks great but what happened was simply people weren’t educated enough to go out and manage the money and so they are subject to being hurt by Wall Street charlatans, who go out and sell unscrupulous assets, which happens. They are subject to not being disciplined in how they manage their money or not knowing the difference between a stock and a bond and a commodity. They get advertising materials that say ‘Run for the hills! Buy gold!’ and so they can get hurt. The solution is education. It is why I created SAFE, the Society to Advance Financial Education. It is devoted to educating people on these issues so they can effectively manage their own money.”
Q: So we get to keep more of our money and here are private educational resources to help you learn how to manage the extra money you’re now getting because you’re having to pay less to the government.
A: “Yes, and here’s the fundamental difference on why it works on the private level and not the government level. When I run SAFE, I can only get donations and people to support it if I provide a quality product at a quality price on a time frame that is in competition with all the other private providers of education. When government does something it doesn’t have a governor on it as to time, quality, and price…..It is why the socialist economies have so many products at high prices and limited availability. Because when governments regulate and control industry, they destroy the incentive for people to compete and make things better.”
ABOUT THE FED
Q: Is there anything else that you see in the economy that would bear on the presidential election coming up here in November, Trump versus Hillary Clinton and anything you wanted to tell readers?
A: “The markets right now have broken through record levels again but they are not overly expensive when you compare the market valuations right now to alternative investments. When you’re looking at the yield on a ten year bond it makes sense to buy a dividend paying stock that pays two or three percent. That’s why the market is where it is. With that said, there is an exposure here of interest rates that is significant. I don’t think that the FED will necessarily raise rates in September. I think that the productivity data that came out probably quashed that however, they want to raise these interest rates. Economically they know they should. So as we go September through the end of the year, if they raise rates therefore make bonds more competitive, you could see the market take a fairly reasonable hit, let’s talk in terms of ten percent.”
Q: You mean the FED raising raising interest rates?
A: “Yes. We need to watch that closely….There is economic pressure [because] the fixed income market, [meaning] bonds, corporate bonds, is biggest investment class out there and what you need is an incentive for savers. You need people to want to buy fixed income outside of the market so they don’t lose my money. We have to get out of the mind set of ‘I don’t to lose money’ and into a mindset of ‘how can I make money?’.