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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: tejek who wrote (157630)	1/8/2003 1:39:37 PM
From: Jim McMannis	Respond to of 1583406

Dividends? Shoot they should eliminate cap gains on stocks like they did on home sales. Funny how no one mentions that. Of course the most fair thing is a flat tax and little exemptions. But that would mean taxing the sale of a house. I can hear the screams. Jim

To: tejek who wrote (157630)	1/8/2003 1:41:36 PM
From: tejek	Read Replies (1) \| Respond to of 1583406

Parsing Out the President's Policy By Doug Kass Special to RealMoney.com 01/08/2003 08:18 AM EST Editor's Note: This column was adapted from RealMoney Pro's The Edge trading diary. Doug Kass is general partner for two investment partnerships, Seabreeze Partners and Kass Partners. To sign up for RealMoney Pro, where you can see Kass' commentary every day, please click here. -------------------------------------------------------------------------------- President Bush's plan, released Tuesday, has three goals (in this order): To promote investment in equities and job growth. To spur consumer spending. To aid the unemployed. This morning, I want to discuss the first point because investors have gotten far too giddy about the relaxation of taxes on dividends. At its core is the decision to eliminate taxation of dividends, the centerpiece of the president's proposal. Investors have greeted this quite positively: Just look at the share-price performance of high-dividend-paying stocks over the past three trading days and the overall positive price movement of the equity market. As the single most important factor to the president's proposal, the elimination of taxes on dividends is intended to elevate equity prices. Once achieved, business confidence will be elevated and the economy will improve (see point 2 above). Unfortunately, I believe the general optimism surrounding the administration's first proposal will be short-lived, and the market's obsession with high-yielding stocks will soon fade. First, in all likelihood, the proposal will have a limited positive economic impact in 2003 -- when the stimulus is most needed. For example, most investors will not save money from the plan until they file their 2003 returns -- 15 months from today! The administration will also probably be forced into a lot of compromising with the Democrats in order to get a reasonably quick passage. Remember, we're rapidly approaching the important 2004 election. The Democrats have a number of issues that will form the basis of their platform, with the economy being the most important. Do you think that the Democrats will ratify the Republican proposals without huge opposition of content and timing? Investors seem to be counting their dividends before they are hatched! Second, given the current levels of dividend yields coupled with the need for most corporations to pay down debt (not raise dividends), the effect will be muted. The alternative is to reduce or delay growth initiatives like capital spending, which would have a retarding effect on overall economic growth. Third, the nontaxation of dividends will likely increase the structure of interest rates. Municipal bond interest rates appear especially vulnerable to policy changes. And higher municipal rates will make already weakened state and local governments pay up for financings. Cont'd -------------------------------------------------------------------------------- Doug Kass is the manager of two hedge funds, Seabreeze Partners and Kass Partners, and renowned for his emphasis on a short-selling strategy.