Wednesday, March 21, 2007

Democratic Tax Threat

It’s a wonder the stock market is holding up against the growing congressional threat of higher taxes on capital gains and dividends.

While everyone is obsessing over subprime mortgages, Democrats in Congress are working slowly, surely, and steadily to erase these pro-growth tax cuts. And I believe it is this news coming out of Washington that is hurting stocks as much as anything else, including the subprime obsession.

Dan Clifton of American Shareholders Association reminds me that both Charlie Rangel and Nancy Pelosi said on Kudlow and Company that they would not repeal the pro-investment tax cuts. Ms. Pelosi said only as a last resort, but it looks like the Dems are moving swiftly to a first resort with Sen. Conrads’s budget and Chairman Rangel’s “tax rearranging” plan.

In Washington, the latest from Senate Majority Leader Harry Reid is to keep the social policy tax cuts on children and marriage, but to get rid of the pro-growth tax cuts on capital.

Remember, both the Chinese and Japanese stock markets sold off on rumors of a cap gains tax hike.

Treasury Secretary Paulson expressed strong opposition to tax cut repeal on our CNBC show last week. And it is widely assumed that President Bush would veto any tax cut rollbacks.

But the Democrats are grinding forward on some very bad tax hike and budget overspending legislation. This may be the true source of the current stock market correction.