When Congress fails to act


Bait and switch is worse when it is government doing it
James K. Glassman sums it up pretty well.

But the dividend and capital gains cuts turn into pumpkins (reverting to their old top rates of 35 and 20 percent, respectively) at the end of 2008. And in 2011, the pre-2001 estate tax reappears. Since backers lacked 60 Senate votes, all three of the cuts were only temporary.
 
The estate-tax cut can wait a bit for an extension, but the dividend and capital gains tax cuts can't. My guess is that, early in 2006, the prospect of the big increases will weigh on markets. Investors will start selling stocks and other assets to take advantage of the expiring 15 percent capital gains rate, driving down prices.
 
Academic research has found that the dividend cut, by increasing what America's 57 million investing families can keep after taxes, boosted stock prices considerably. A paper for the prestigious National Bureau of Economic Research by Alan Auerbach and Kevin Hassett concluded that the cuts "had a significant impact on equity markets" -- a broadly positive impact. Take the cuts away, and stocks will almost certainly head in the opposite direction.

Of course the real problem is still spending, but high tax rates make capital dry up.

This could have a real impact on the 2006 elections. I don't expect the Democrats to come up with a solution, I just expect them to blame the Republicans. And this time they will have a point.

— NeoWayland

Posted: Tue - November 29, 2005 at 05:02 AM  Tag


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