Do you have money in the stock market? Are you waiting for the right time when you’ve recouped most of your losses to sell out and re-balance your portfolio?
I am.
But my actions may be hastened by this plan by democrats to increase capital gains taxes 69%!!!!!!
House Democrats are funding their new entitlement with a 5.4% surtax on incomes above $500,000 for individuals and above $1 million for joint filers. The surcharge is intended to snag the greatest number of taxpayers to raise some $460.5 billion, and so the House has written it to apply to modified adjusted gross income. That means it includes both capital gains and dividends.
That surtax takes effect on January 1, 2011, or the day the Bush tax rates of 2001 and 2003 expire. Today’s capital gains tax rate of 15% would bounce back to 20% because of the Bush repeal and then to 25.4% with the surtax. That’s a 69% increase, overnight. The last time investors were hit with anything comparable was 1986, when the capital gains rate jumped to 28% from 20%, a 40% increase, as part of the Reagan tax reform that lowered income tax rates.
When Reagan did this it resulted in failure:
Tax revenues from capital gains surged before the increase took effect in 1987, as investors moved to cash in at the lower rate. Revenues then plummeted. Total realized capital gains didn’t again reach their 1985 level of $172 billion until 1996. By 1992, the federal government was barely getting more in revenue ($29 billion) at the 28% rate than it did in 1985 ($26.5 billion) at the 20% rate.
Rate reductions, as in 2003 when Republicans cut the rate to 15% from 20%, have typically had the opposite effect. Treasury receipts from capital gains climbed to an estimated $117.8 billion in 2006 from $49 billion in 2002.
And Democrats, being Democrats, having never read history and doomed to repeat it, seem hellbent on doing so now:
this is an example of the folly in using static tax analysis for public policy, perhaps especially on capital-gains tax rates. Democrats in 1986 — and now — assume that hiking the CGT rate by 69% will produce 69% more revenue that what was received at the old rates. That doesn’t take into account market behavior after tax conditions change. A capital-gains tax hike will push investors to cash out before it hits, and then shelter their assets rather than putting them to work. After all, at a CGT rate of 25.4%, they would probably pay less tax by getting interest off of their cash than by assuming the risk of losses and paying higher tax rates on the gains.
During the presidential campaign, Barack Obama stumbled when he first proposed at CGT rate of 28%. His big-money backers reeled from the idea, and later Obama reduced it to 20%, still a significant increase. Nancy Pelosi has jacked it back up again, and one has to wonder whether all of those Wall Street wizards who supported Obama in 2008 are having buyer’s remorse yet.
My advice to you all? Get ready to bail. Study your portfolios, prepare “trip points” and take action.
Don’t trust Nazi Pelosi and her minions to do anything remotely good for our country.
