Bold Stroke: Cut capital gains rate on stock … to ZERO … here’s how & why

McCain was onto something when he proposed cutting the capital gains rate to 7.5% for the next year or two.  But, he left the idea half-baked and, as usual, didn’t communicate it very well

Here’s my bold stroke:

How:
Cut the capital gains rate to ZERO on stocks (not derivatives or other funky financial products) that are purchased after, say, November 15, 2008 and held for 12 months or until January 1, 2010 — whichever is longer.

Why:
The market seems to be a buying opportunity now, but investors are reluctant to jump in.  Why? Because of fear that (1) the market hasn’t bottomed — lending is stalled, TARP is a mess, earnings are deteriorating (2) Obama hasn’t backed off on his plan to increase capital gains rates.

The 2nd fear is the easiest to fix.  Eliminating the capital gains taxes on “new” stock purchases would tilt the risk-reward equation a bit.  Maybe enough to draw some capital off the sidelines and into the market — boosting stock prices, or at least providing some low-end support.

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One Response to “Bold Stroke: Cut capital gains rate on stock … to ZERO … here’s how & why”

  1. TK Says:

    I never paid much attention during finance class, but aren’t future earnings supposed to drive investing decisions? The markets are melting down because the american people are taking a pay cut. Without loose credit people are forced to live on their paycheck. That means no more flat screens. No more $3 water. No more $6 coffee.

    More importantly, the financial sector is in worse shape than anybody has admitted. Let me repeat that. The financial sector is in worse shape than anybody has admitted. In short future earnings cannot support P/E ratios – even at their current reduced levels.

    Luring investors into the market with a stock break would be no different than luring them into overpriced homes with a stock break. It is NOT sustainable. It is going to hurt, but maybe its time that we all swallowed hard and took our medicine.

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