Why Tax Increases Will Cause a Market Crash

by: Satwaves

Does the 300 point gain in the DOW have you all giddy at the moment?

The equities markets were up big on Wednesday and Thursday, supposedly on better then expected jobs data. The thing that struck me as odd is the discounting of the holday shopping season. As Friday’s report will likely reveal, the jobs being created are likely temporary holiday jobs, offering both low hours and low pay in retail and manufacturing. It happens every year, and yet for some reason this year it is being ignored.

The REAL reason for the market rally stemmed from Capital Hill. On Wednesday, all 42 GOP senators sent a letter to Harry Reid that they would block all bills until the Bush Tax Cuts were extended. After the insiders that were privy to this info caused a market rally, the news was reported to those of us with lesser rank on Thursday. The markets went up just enough to stall once retail investors thought it was all clear, and began buying once infected with gold fever.

Late Thursday, the House of Representatives passed a bill that would extend the tax cuts, but only for Americans earning less than $250,000.00 per year. That would unfortunately, do nothing to prevent the impending collapse of the markets as dividend and capital gains taxes on the wealthy will cause a massive selloff at some point this month, if those those tax increases are allowed.

Perhaps this is the intent of an administration intent on the transfer of wealth from the haves to have nots. Crash the markets, and everyone can buy back in lower. The republicans and democrats are now farther apart on the issue it seems than ever before, with the GOP referring to the lame attempt to partially extend cuts for some as “chicken crap.” CNN reports the following statement by Democrats:

Several economic studies have indicated that the wealthiest people — the top three percent who make more than $250,000 per year — are more likely to invest tax cuts in stocks or other assets than to create jobs. And, Democrats point out, many large American corporations are posting record profits without sinking that money into payroll. Instead of spending money on tax cuts, they say, the money should be spent on actual jobs — which, in turn, will bring businesses the customers they need to thrive.

Perhaps truer words were never spoken. My contention has been that these same people will be forced to cash in their stocks that carry long term cap gains this month, to avoid tax increases on those gains next year. If in fact 90% of the wealth in this country is held by 10% of the people, your 401k that became a 201k, is about to become a 101k or less, and it seems as if the democrats on the Hill are more intent than ever on allowing this to occur.

Disclosure: No stocks mentioned