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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: Steve Lee who wrote (7199)	11/5/2000 8:22:01 AM
From: orkrious	Read Replies (1) \| Respond to of 30051

I have an even simpler question. How can electing a socialist be better for the markets than electing a capitalist? Jay

To: Steve Lee who wrote (7199)	11/5/2000 10:05:49 AM
From: Zeev Hed	Read Replies (3) \| Respond to of 30051

Steve and Sam, 98% marginal tax rate is indeed a punitive tax rate. The highest we had in this country was 70% and that was not healthy. What is even less healthy is when the marginal tax rate on the middle class (earning around $100,000 year) is 51% (36% income tax and 15% "payroll taxes") and the marginal tax rate on those making more than $1 MM is really no more than 20% (most of their income is "engineered to be "long term" capital gains, some of which is taxed only at 10%). What is unhealthy is when a tax cut which "applies equally to all", actually reduces the tax rate of those in the $1 MM plus category (percentage wise) more than it does those in the $100,000 bracket. If you cut the $1 MM category "marginal" tax rate of 39.6% and bring capital gains taxes to 15% and eliminate the inheritance taxes, you end up with the tax burden shifting heavily to those earnings less than $100,000. Economically, yes, tax cuts are "stimulatory", but how much stimulation each dollar in taxes cut creates is not so simple. There is "consumption" stimulation and "investment" stimulation. When you have too much "investment stimulation" you create bubbles, and bubbles have a way of "erasing assets" when they collapse (and they eventually always collapse). Consumption stimulation get directly into the GDP. You need some of both to maintain a well growing economy. However, as the last five years show, we have had excess investment stimulation (thus a lot of money flowed into worthless dot.com and got "eliminated" or wasted). However, if we continue the current course, the rate of investment stimulation would not change much, so there is no particular need to create additional investment stimulation which can only lead to these funds finding new bubbly waters. If you add to Bush's proposal to increase investment stimulation the $1 trillion of excess liquidity (social security scheme), you will expose all these funds, including those "privatized" social security funds, to "elimination" by market forces creating a long term problem for the economy, IMHO, and of course setting back the retirement plans of the "young people" that decided to manage their own Social security money. Any changes in taxation that involve more than 2% or so of the GDP will create dislocations (whether it is an increase or decrease), thus small tax cuts that result in additional consumption will stabilize forces in progress right now to slow down the economy, IMHO. As for the markets, I think that once the Euphoria of the election results passes, the realities of the Fed's having to lean against any fiscal relaxation (and a massive one if Bush gets the nod) and actually, increased interest rates will set in and hit the markets even harder than I thought (my scenario assumed a Gore victory, which may be doubtful at this time). Zeev