Newsmax.com, a conservative site, has an in depth report about what they see Barack Obama's policies doing to the stock market. Now, it is important to first note that no one person, not even the President, can single handedly affect the stock market or any market. For instance, Bill Clinton tried his damndest to crush the market when he raised taxes on the wealthiest, and yet, through a complicated set of events, the market exploded regardless. Still, taking a look at his policy proposals, one should be troubled by the direction that they may send the market into.
The most troubling policy proposal of Barack Obama's, as it relates to the stock market, is his desire to raise capital gains taxes. While it is still unclear just how much he will raise them, the consequences of raising capital gains taxes on the stock market could be devastating. Here is how capital gains taxes work in the stock market. Any profit on any investment held for more than a year is taxed at capital gains levels. Any profit on any investment held less than a year is taxed at ordinary income levels. (another words at the same level as your income from your paycheck is taxed) Now holding any investment more than a year has with it intrinsic punishment. That investment becomes illiquid. As such, there is already a natural motivation against long term investing. Still, for the most part, we want investors to hold their investments long term. Day trading, and other short term strategies, contributed to the internet bubble. Such techniques should be reserved only for select few professionals. A capital gains tax punishes exactly that behavior which we want to encourage in the stock market, long term investing. Raising the capital gains tax means Barack Obama will discourage even more long term investing. Raising the capital gains tax will not only discourage investing in general but furthermore, it will discourage long term investing specifically.
On top of this, Barack Obama has already promised to raise the top rate on those making 250k and more and he is suggesting adding an extra payroll tax on all income over $250,000. (currently at 102,000) These two tax increases will go at heart of investable dollars. It is exactly those that will be hit with the higher income tax and payroll tax that dominate the stock market. This group is also going to be the ones most punished by the capital gains tax increase. Those making 250k and more will likely see their own tax rates go up as much as ten percent. Thus, an individual making 500k will end up paying an extra fifty thousand in taxes every year. This extra tax will cut at the heart of investable dollars. Remember, people invest only after everything else has been paid for. As such, increased taxes on the wealthier Americans will go almost exclusively to giving those Americans less money to invest in the stock market.
Next Barack Obama wants to increase the corporate tax rates. While this may be a great populist tool, what it means is that corporations will have less money for capital investment. Furthermore, they will have to pay more on their capital returns in the form of the higher capital gains tax. In other words, just like wealthy Americans, corporations will be hit twice. Thus, what you will have is not only less investable dollars, less incentive to hold those investable dollars long term, but an environment of stunted growth for the investment vehicles of those dollars.
Let's not forget that Barack Obama wants to create a new "regulatory framework". What this means is a plethora of new regulations for all companies to follow. Obama will reserve a special place for financial services and oil, which will be hit with all sorts of punitive regulations. The environment for those two industries specifically will be very sour under Barack Obama.
The return of the estate or death tax could put further pressure on the market. The estate tax punishes mostly the wealthier estates. Since equity in illiquid assets like real propery is included in the estate tax, there is going to be great motivation for those hit with the estate tax to liquidate and sell their investments, a liquid asset, to pay for the estate tax. Thus, once again we have another Barack Obama policy that will put downward pressure on the stock market.
Of course, all of these things maybe combined with socialized medicine, forced eco friendly energy, and tax and spend policies on the poor and downtrodden which will all likely further contribute to an unfriendly environment for the stock market. Thus, in conclusion, while he won't single handedly control the market, Barack Obama's policies will unquestionably be unfriendly for the stock market.
For the other side, here is my analysis of John McCain's policies on the stock market.
For an update on how President Obama's policies have affected the market go here.
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