Lack of Confidence Impacting the Market

Over the course of the last month and a half, I have written a few posts citing the lack of confidence as a key element in the market's current weakness. To be sure, there are fundamental factors that need to be addressed to get the economy on firmer footing as well. Some of those factors include:

• a reduction in consumer and government debt levels
• the unwinding of derivatives exposure
• stopping the bailout of every company

One major issue that is pulling down confidence is the overhang of the potential new tax policies that will be coming out of Washington under the new Obama administration. Raising taxes in an environment of economic weakness historically has not proved a positive for an economy that is in recession.

• Obama's desire to uncap the payroll tax has very negative implications for businesses and individuals.
• Eliminating the deductibility of 401(k) contributions reduces the incentive to save. It is saving, and not spending, that more individuals need to make more of a habit.
• Increasing benefit costs related to health care provided by employers. This policy does not promote hiring.

In times of economic weakness, raising taxes and instituting policies that discourage employers from hiring will not stimulate economic growth. President-Elect Obama and his advisers would be wise to make a statement that they will not raise taxes in any form on individuals and business during economic times like we are in currently.

Comments

[Cookiedoctor:]

I don't disagree that additional costs to business are a hindrance to business expansion or the creation of additional jobs. However, in my opinion the Obama tax policies were already priced into the market before election day. His win was not a surprise. I think the markets and the consumer will react positively to our leadership when they are transparent in their dealings with the TARP and when they do as they say they will. Changing course because Mr. Paulson decides to revise his plan eliminates predictability and a stable route needed by investors today. In short, when our leaders come up with a plan they should follow that plan. Instead, today we have launched into "Trickle Down Socialism" that isn't working. We are giving billions of dollars to banks that have proven they don't know how to manage mony and further, that plan to use the new money for M & A activity, not lending. The really curious thing is that we taxpyers through Paulson's decisions are playing favorites in the process and asserting influence inappropriately. For proof, how is it that Moody's rates AIG at Aaaa when we all know thay went broke already because of poor management?

2008 Nov 13 08:39 AM

[Vox Rationalis:]

Fear.

2008 Nov 13 10:28 AM

[Kunst:]

"Eliminating the deductibility of 401(k) contributions reduces the incentive to save."

That's a new one to me. Who is proposing that?

2008 Nov 14 07:18 PM

[David I. Te...:]

The following article appeared in the Friday edition of the Wall Street Journal

Targeting Your 401k


On Nov 14 07:18 PM Kunst wrote:

> "Eliminating the deductibility of 401(k) contributions reduces the
> incentive to save."
>
> That's a new one to me. Who is proposing that?

2008 Nov 15 05:27 PM

[David I. Te...:]

The link to the Wall Street Journal article discussing Congress' desire to eliminate the deductibility on 401k was mentioned in Friday's edition:

online.wsj.com/article...

2008 Nov 15 05:30 PM

[Kunst:]

Read the article. You might be overstating just a little with "Congress's desire". Still, we have a lot of deductions that are questionable. Maybe we should eliminate them all.

2008 Nov 15 07:01 PM

[Kunst:]

That's "read" as in "I read....".

2008 Nov 15 07:03 PM

[Homer II:]

"Eliminating the deductibility of 401(k) contributions reduces the incentive to save."

Oh, that would be just the ticket if they tried to do that.. all the crushed Baby Boomers would surely revolt in 2004. Lets hope the doltocrats try that

2008 Nov 16 12:00 AM