Berney:
I agree with you 100%, and I've been thinking and saying the same thing since last fall. You cannot wipe out $2 or $3 trillion in market cap without cap gains tax payments taking a major hit, and all that tax loss selling Oct-Dec was not for nothing, it was to offset a chunk of the gains people had realized earlier last year from the 1999 run up. You only have to look at the US Treasury monthly tax receipts to see the balloon in tax receipts in Jan, April, June and Sept to see the major contribution from non-withholding sources, but the first month to take the hit from declining depositis will be April. In addition, the Treasury could well see record tax refunds that month for the reason you outlined (quarterly tax deposits in excess of tax liabilities), and you can bet people will be filing on time for them. I think that the projected budget surpluses are going to turn into projected budget deficits faster than the Nasdaq has declined.
The problem is, while Greenspan may have been slow to realize the effect of declining stock market values on consumer spending and its feedback effect on the economy, our elected representatives in both the Administration and the Congress have their collective heads buried in the sand (or somewhere worse). Not only did they already spend part of this fiscal year's surplus in election year pork barrel spending, they're well on their way to spending the rest. Come April, when they're in the middle of debating how much of the "surplus" they can spend in a tax cut, they're going to get an extreme case of sticker shock when they realize the "surplus" isn't there to fund it. Then George W. is going to face the daunting prospect of selling a large supposed economy-stimulating tax cut at a time when the federal budget is running a deficit, GDP is flat or contracting, and unemployment is increasing.
The ramifications of the contraction of the last few years stock market "bubble" seem to be growing rapidly, and the whole mess could take years to work itself out.
David T. |
