Monday, October 27, 2008

Income Tax Uncertainty Weighing On Market

Many factors are weighing on the stock market. One of the factors likely impacting the markets is the potential drag Barack Obama's tax plan would have on businesses and U.S. investors.

(click table for larger image)

McCain Obama tax plan comparison
  • Mr. Obama would roll back the 2001 and 2003 tax cuts for taxpayers in the top two brackets, raising the top two marginal rates of income tax to 36% and 39.6% from 33% and 35%. The 33% rate begins to hit this year at incomes of $164,550 for an individual and $200,300 for joint filers.
  • If you're an individual with taxable income of $164,550, you will pay more taxes.
Particularly of concern is Mr. Obama's desire to eliminate the cap on payroll taxes. This has negative consequences for small business and it is small business that create most new jobs in the U.S.
  • Mr. Obama's most dramatic departure from current tax policy is his promise to lift the cap on income on which the Social Security payroll tax is applied.... it's unclear if that higher rate would apply to the employee, the employer, or both.
If Mr. Obama's plan is instituted as proposed, a further slowing of the U.S. economy is likely. A slowing U.S. will have implications for global markets as well.

Updated: 9:50AM:

And this additional concern with respect to wealth redistribution.


The Election Choice: Taxes
The Wall Street Journal
By: Brian M. Carney
October 25, 2008


Anonymous said...

They say the stock market is a leading indicator ... it looks 6 months ahead. All signs point to a BO win. Obviously the stock market is not happy.

David Templeton, CFA said...

The market does seem unsettled about the tax plan. The difficult part is the U.S. and consumers will need to tackle their debt issues at some point. The question is how to approach the problem.

Raising taxes in a slow/contracting economy is likely not to lead to a positive outcome at this point in the economic cycle.