Sunday, July 29, 2007

Schwab on Capital Gains Hikes

Stephen Moore, now of course with the Wall Street Journal, does a "weekend interview" with Charles Schwab in "Talking to Chuck." Here is the fabled investment trendsetter on taxes:

Mr. Schwab describes the Bush administration's capital gains and dividend tax cuts as exactly the right prescription for the ailing stock market after the dot-com crash in 2000-2001. Those tax cuts, of course, are under constant assault by Democratic presidential hopefuls and the Democratic majorities in Congress.

What would be the stock market response to repealing them? "Oh, I think it would probably cost the market 5% to 10%," he predicts. "That may not happen on a single day. But it will certainly suppress prices. And the market is already anticipating these higher tax rates," he assures me, which means stock prices are already being suppressed by tax uncertainty.

"I would say we're probably in the neighborhood of $10 trillion of unrealized capital gains" Mr. Schwab says of the present economic situation. "If you put a 100% tax on it, of course, the government's going to get none of that. If you're at zero, you would get none. With the 15% rate for capital gains, we're probably at the optimum rate."

Then he adds something that House Ways and Means Committee chairman Charlie Rangel should take to heart: "Bear in mind that the higher [capital gains] tax is principally directed toward individual investors. Not foundations or pension funds. It will be the individual who takes the hit."

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