Tax Cuts Impacts

The Congress extended two tax cuts the other day--the 15% tax on dividends and the 20% tax rate ceiling on capital gains.  The stock market showed its appreciation by going down 200 points.

Oh, well.  And I don't want to get into the argument about tax cuts for the wealthy or raising taxes to pay down the deficit.  The top 5% of taxpayers already pay something like 50% of the taxes so don't go too hard on them.  Plus we could consider cutting spending as a way to reduce the deficit but that ain't going to happen.

So let's look at the impact of cutting taxes.  There have been only three instances in the last fifty years of significant tax cuts.  The first was Kennedy.  Yes, a Democrat cut taxes.  And the economy went up.  Then Reagan cut taxes in the 1980s and the economy and the stock market went on a tear.  Then W cut taxes in the early 2000s and the economy came back as did the stock market.

Now if you are good, you would say Yeah, but the market went up in 1994 when Clinton increased taxes.  And the stock market was at a record high just before Bush came in.  Correct, but the market in the late 90s was running on fumes and unsupportable PEs so a pullback was in the works.

But, in general, tax cuts are good for the economy and here is some proof.  Oh, and consumer sentiment hit a new low the other day so this should brighten up everybodys day.

-Real GDP has increased $1 trillion, or 11%, between 2003 and the end of 2005.

-Since the tax cuts, 5 million new jobs have been created.  That's more new jobs created here than in Europe and Japan combined. 

-I guess all the bicycles are not made in China as our industrial production has increased 11% over the last three years.

-In less than 2 years over 3.9 million new businesses have been started.

-notwithstanding the last couple of days, the market is up.  The Dow is up 42% and the S&P 500 is up 55%.

-Corporate profits are up 46% since the start of 2003.

-Dividends paid out by corporations have increased from $149 billion to $200 billion.

-Capital spending has increased by 30%.

-The household assets of American families has increased $15 trillion while liabilities have increased only $3 trillion.

-Foreign direct investment in the US has increased 90% since 2003.

-The overall assets of the nation have grown 30% to $160 trillion in three years.

That's enough.  Not all of that is due to tax cuts but a lot is.  And if it ain't broken, and it ain't, don't fix it.  Just quit reading the daily newspaper because you won't find any good news there.  I had a boss that did that and it got him out of a truly depressive state.  Got me out of one too.

Try it.