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Or you can now use TapaTalk again!Birchtree's Account Talk
- Thread starter Birchtree
- Start date
wv-girl
Analyst
- Reaction score
- 12
This one's for you Birch
It's Almost Too Late to Escape Pelosi's New Year's Eve Tax Trap
By David Galland, Managing Director, Casey Research
The administration knows its massive deficits will be poison come the November 2010 midterm elections. At the same time, it also knows if it cuts stimulus spending, it risks kicking the props out from under the recovery just ahead of those same elections.
There's only one way out. That's to boost revenues... and soon. It would be political suicide for Obama to break his pledge not to raise taxes on the middle class. So all that's left is to mug the "wealthy."
It's already a given that taxes are going up for higher income earners and investors. Most importantly, the administration and its Congressional allies have announced they'll allow the Bush tax cuts to expire in 2011. Those cuts, passed in 2001 and 2003, reduced personal income taxes and capital gains taxes, as well as eliminated the estate tax.
Once the Bush tax cuts expire, high earners will see their personal income taxes rise from 35% to 39.6%. (And probably go up from there. The House health care bill includes an additional 5.4% surtax on gross income for high-income individuals.) In addition, the estate tax will return.
And long-term capital gains tax rates, now at 15%, will be boosted to as much as 28%.
But here's the rub: Ahead of the 2011 tax changes, investors will begin dumping appreciated stocks in order to lock in capital gains and avoid paying the additional taxes. That will create an unwelcome stock market selloff ahead of the November 2010 elections.
The Democrats knows this, which is why – behind the scenes – they are now setting a bulletproof tax trap to spring soon after the New Year begins. The trap is simplicity itself: a repeal of the Bush tax cuts in 2010, a year ahead of schedule.
Further, when passed, the legislation will be retroactive to January 1, 2010.
It's the perfect trap, because once the higher taxes are in place, there will be no tax incentive for anyone to divest their shares. In fact, many people will decide to hang on to their stocks until a more investor-friendly regime returns to power.
By increasing taxes across the board on the wealthy a year ahead of schedule, the government gets a big lift in revenue. Simultaneously, it avoids a rush for the exits that would otherwise occur ahead of the capital gains tax increases. For the government, it's a win-win. Very much not the case for investors.
Could the government really pull this off – implementing a retroactive tax increase?
In a word, yes. Back in August 1993, President Clinton passed the largest tax increase in history – the Omnibus Budget Reconciliation Act of 1993 (OBRA) – and made it retroactive to January of that year.
It was challenged in court, and the court held that retroactive tax increases were legal. This was not the first time this sort of chicanery had been pulled. (You can read more on the topic of retroactive taxes by clicking here.)
Why am I so confident this trap is being set? Nancy Pelosi herself tipped her hand on the retroactive tax plan when she said last January she wanted Congress to repeal Bush's tax cuts well before their scheduled expiration date. An early repeal of the Bush tax cuts was also one of President Obama's campaign promises.
The administration and its allies have since gone quiet on its intentions. But that's only because they want to avoid triggering a stock selloff before the end of 2009. That all changes once the ball drops in Times Square this coming New Year's Eve. At that point, it will be too late to escape.
The good news is that avoiding this trap is as easy as selling your most profitable stock positions on or before December 31, 2009. This way, you'll only pay 15% on your long-term capital gains... instead of the 28% the government is planning to sting you with once its tax trap is sprung in 2010.
Good investing,
David Galland
Birchtree
TSP Talk Royalty
- Reaction score
- 143
Ferdinan says not to worry that the stock market rally is not going to get crowded any time soon. At least where I live one in four mortgages in Florida were either past due or in foreclosure. There's no indication in the data that foreclosures are going to abate anytime soon. Nationwide home prices will fall up to 10 percent before bottoming next fall. Driven by rising unemployment, prime fixed-rate loans to borrowers with good credit accounted for nearly 33 percent of new foreclosures last quarter. That compares with 21 percent a year ago. Nope, those good folks won't be investing for a while - just the way we like it.
Birchtree
TSP Talk Royalty
- Reaction score
- 143
A few weeks back I had posted that the NYSE composite RA-AD line was only 1500 data points from the previous all time highs at 172,950 in Jan. 2008. Well we made it to 172,126 which was only 824 data points off the all time highs before a sideways consolidation set in. Once this consolidation of the previous gains is complete, and I think it is, we should see an explosive move toward the all time highs and beyond. All we need to do is hold the 39 day EMA and we're off to uncharted waters. We are seeing some wild swings to the upside that is serving to convince some people that the socalled secular bear market is over and that a new secular bull market has begun. The NYSE composite RA-AD line is firmly pointing in that direction. Snort.
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"After nearly 10 years of research and one year of writing, I've completed a book on cycles that I believe will meet the critical demands of most cycle students. It's entitled, 'Stock Market Cycles' and is available for sale at http://clifdroke.com/books/Stock_Market.html
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"Much as past great market opportunities, at the low no one wants to buy for a multitude of reasons. However taking a look at the long-term charts, you do not have to be a genius to arrive at the conclusion that Natural Gas is cheap."
http://www.marketoracle.co.uk/Article15238.html
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"Prudential's Christine Marcks says no need to retire the 401(k)."
http://www.dailyfinance.com/category/investing/
Buster
TSP Talk Royalty
- Reaction score
- 109
Are You saying that you wrote this Book..Birch? (aka Clif?)
Birchtree
TSP Talk Royalty
- Reaction score
- 143
I'm currently sitting at #39 on the tracker, but today may provide some opportunity to move up a few ticks. That darn VIX could possibly drop below the 21 level today - and that puts pressure on my contrarian style. Many folks sun bathing on the lily pad and that's perfect from a classical standpoint.
Boghie
Market Veteran
- Reaction score
- 145
Birch,
Are you still looking to reallocate toward some safety (in stages) when the VIX hits 20?
That seems remarkably close to an S&P of 1200 - which would imply a 23% discount on the equities market from the high. Seems about right to me. Anyone out there thinking that higher taxes, more gubmint debt, more regulation, another potential housing collapse, and a CRE collapse will lead us to new highs? :nuts:
Once the American equities market hits equilibrium nothing will lead it higher. Same for the international fund we have access to. And, who will want bonds. Maybe the 'S Fund' can push through.
Anyway, off to San Felipe on Wednesday for some Cajun Shrimp right off of Lieutenant Dan's boat. He's in the rafters right now. Scouting the Gulf of California for shrimps for Boghies tummy. Yummy
WIND_HUNTER
Analyst
- Reaction score
- 2
Birch,
Are you still looking to reallocate toward some safety (in stages) when the VIX hits 20?
That seems remarkably close to an S&P of 1200 - which would imply a 23% discount on the equities market from the high. Seems about right to me. Anyone out there thinking that higher taxes, more gubmint debt, more regulation, another potential housing collapse, and a CRE collapse will lead us to new highs? :nuts:
Once the American equities market hits equilibrium nothing will lead it higher. Same for the international fund we have access to. And, who will want bonds. Maybe the 'S Fund' can push through.
Anyway, off to San Felipe on Wednesday for some Cajun Shrimp right off of Lieutenant Dan's boat. He's in the rafters right now. Scouting the Gulf of California for shrimps for Boghies tummy. Yummy
Yum! Yum! Fresh shrimp! Now that sounds like a great Thanksgiving!
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"Seasonally Strong Period For the Stock Market Begins. Making money in the stock market isn't about making correct predictions, but in identifying the long-term trend of the market - which is UP right now - and using investment stratigies that are appropriate for it."
http://safehaven.com/article-15098.htm
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"As the S&P 500 traded out to new reaction 'highs' in the first part of last week we heard a cacophony of crybabies."
http://www.raymondjames.com/inv_strat.htm
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"The dollarfell and commodities were mostly higher as the Dow climbed Monday to its highest level in more than a year."
http://www.cnbc.com/id/34116956
burrocrat
TSP Talk Royalty
- Reaction score
- 162
holy crap, talk about runnin to the G fund. i haven't felt that guilty looking at a picture since junior high when we used to steal the playboys with the covers ripped off out of the dumpster at the quickmart, apparently they got some kind of benefit back from the publisher, a good deal in my book.
on a practical note, does storing 3000+ rounds in full clips over long periods reduce the spring strength and lead to feeding problems?
fun to have but really necessary? i always figured if you found yourself in so much trouble that you needed more than 100 rounds you should have been more perceptive or brought a bigger caliber.
kinda like them gold bugs, fun to have and hold, but seldom used for a practical purpose.
Birchtree
TSP Talk Royalty
- Reaction score
- 143
"Everyone understands the relationship between the Transportation Index, goods that are shipped, and retail sales. If the Transports were to fail to the downside, it would suggest that the economy was weakening because of a decrease in products being shipped. A break to the upside would suggest the economy was getting stronger because of an increase in products being shipped."
http://safehaven.com/article-15113.htmSimilar threads
