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Politics : Politics for Pros- moderated
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To: LindyBill who wrote (377268)8/9/2010 6:47:26 PM
From: Elroy  Read Replies (1) of 793964
 
Bayh and Lieberman have the story exactly right. And Treasury man Geithner has it fundamentally wrong.

I wonder. It sort of makes sense that the "stimulus" can generate more economic activity than stock investing. Say we have $2 billionaire Joe and he makes $100 million some year selling his long term holding IBM. His tax is either $15 million (now) or $20 million (if the Bush cuts expire). He's probably going to take his remaining $85 or $80 million, and put it into some other stock, say HPQ.

The $5 million difference (from the tax cut expiration) is going to be used by the government for basically unemployment payments of out of work people, or helping states pay their salaries/bills. The recipients of this $5 million are likely going to spend almost all of it, they need the money to live.

It's hard to argue that $5 million invested in HPQ stock (where it may sit passively for 5 years) does more to keep the economy afloat than $5 million which will be spent this year on US goods and services. $5 million won't even move the price of HPQ stock.

I think its hard to make the case in a liquid stock market that functions well that long term passive equity investing is better for the economy than welfare. Of course if all the capital were sucked out of the equity investing system that would be horrible for the economy, but if a small percentage (5% on long term cap gains) is removed and given to low/no income people, that seems (on the surface) better for the ecnomy - those recipients are going to spend all of it, whereas the long term investors, if they kept their gains, are probably just going to sit on them in some other equity.
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