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Politics : Stockman Scott's Political Debate Porch
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To: westpacific who wrote (11370)1/9/2003 10:16:27 AM
From: westpacific  Read Replies (1) of 89467
 
If the tax on dividends is eliminated, stocks will then directly compete with muni bonds. The odds are that the public will move to some extent out of munis and into dividend-paying stocks. This will hurt munis to some extent, although top-grade munis will have the advantage of safety over most stocks. However, this will hurt the states badly, since they will have to up their interest on the munis they sell in order to compete with stocks. This will come at the worst time possible for the states, counties and cities, since the great majority of them are now in bad shape and heavily in debt. The last thing they need is competition for their muni bonds.

The retail public, badly in need of real income, will be drawn to dividend-paying stocks. People who never bought stocks before will be attracted to dividend-paying stocks. This will result in an increasing number of people buying stocks. But since we are in a continuing primary bear market, the more people drawn to stocks, the worse, since even though dividends will be untaxed, the bearish trend of stocks will hurt people. This could be the biggest and most costly "hook" in the Bush tax bill. The ultimate in unintended consequences.

RR - Dow Theory Letters
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