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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: NOW who wrote (198285)10/17/2002 6:05:06 PM
From: stan_hughes  Read Replies (3) of 436258
 
While we're talking tax, check this out -- we're embarking upon a rather ominous income tax collection phase because of this market already, and a big rally here could make it even worse.

Howzat? Follow this -

(1) the longs have got loss carryforwards coming out of their arses already, and with writeoffs capped at $3K per, it will be decades before most will pay any CG tax. Being so far underwater means that even a big rally will result in no incremental CG tax becoming payable this year -- all a rally will do is knock the carryforward pool down a notch or two.

(2) the only players that have any CG exposure are the bears, who are very limited in numbers in the first place. Furthermore, if enough of the bear's existing CG exposure gets reclaimed here by a big rally, they will likely be able to close out enough selected positions before yearend such that they will have no CG tax liability whatsoever.

The result for taxation year 2002? Nobody will have any gains to report, but legions of taxpayers will be taking a $3K deduction for their market losses against other income. If you believe the statistics that half of US households own stock and that most of those are sitting on a $3K loss deduction, do the math -- it's going to add up.

I guess the other side of the coin is that the deduction acts like a tax cut, but that's another debate
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