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Monday, November 19, 2012

News Notes

An article in today's Times reports that a substantial portion of the investor class is cashing out stocks earlier than they might otherwise have done because they worry what will happen when President Obama and congressional Republicans reach an agreement on increasing taxes.  (Yeah, I said that with a straight face.)  Large investors can reap millions in extra profits if they sell stock or other assets now, before higher rates kick in.

This behavior is, or course, eminently rational.  It may even redound to the benefit of the economy: True, the government will collect less revenue than if the assets were sold after taxes were raised; at the same time, though, there is no guarantee that taxes WILL be raised or that the assets would have been sold if they were subject to higher tax.  In other words, this mild market panic may result in a short-term windfall to the public coffers.

Two things struck me about the article.  First, a quote from John Moorin, an investor who recently sold approximately $650,000 worth of stock: "I love these companies [whose stock I'm selling], but I’m so scared that now all of the sudden I’m going to get taxed at such a rate with them that they won’t be worth anything."

The current capital gains tax rate is 15%.  Now, I'm no accountant, but I think that means--assuming the $650,000 was ALL profit (which is not, mathematically speaking, possible)--that Moorin would "net" a little over $550,000 after taxes.  Next year, under one proposed change to the tax code, the capital gains tax rate could increase to 20%, meaning Moorin would "only" net $520,000 after taxes.  Sure, $30,000 is nothing to sneeze at, but I think the fact that an apparently seasoned investor considers $520,000 to be "nothing" says something about warped values.

Another thing: Not once but tTwice the article referred to the fact that capital gains taxes may be raised to help pay for "President Obama's health care law" (emphasis added).

A note to the Times' editors: It is NOT "the President's" health care law: It is a law that was proposed by the President, and then debated, revised, and ultimately passed by Congress.  References to the Affordable Care Act as "the President's" law are the kind of thing I'd expect to hear on Fox News, where the editorial staff takes the position that President Obama is the dictatorial love-child of Vladimir Lenin and Hitler.  The New York Times should know better.

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