Daily Investment Interpretations
October 1, 2010
(Friday Night): The markets
rose somewhat today. The NASDAQ Composite rose 2.13
to 2,370.75 The Dow climbed 41.63
to close at 10,829.68,
and the S&P 500 added
to end at 1,146.24. Oil jumped $1.74
a barrel to close at $81.71
a barrel, while Gold closed at $1,320. The VIX ended the
day at 22.50.
Japan reports more jobs, but lower prices
Bond-fund buyers wallow in debt
Household debt still a drag on economy
Stocks, Fed allies for Q4 rally
September doesn’t help stocks’ October odds
Why gold, stocks and bonds are all rising (video)
What I want to add to Rex Nutting's article, America’s choice: Hypocrites or cowards, are some recollections and observations regarding U. S. federal income tax. As I recall, the maximum tax bracket on unearned (e. g., investment) income was 70%. This meant that the wealthy paid 70% of their declared income above the 70%-threshold to the federal government in the form of income tax. The maximum tax bracket on earned income was 50%. And these tax bites came at fairly low levels, Ruth and I were in the 55% tax bracket (for investment gains) on my GS-15 salary. Tax loopholes were all the rage. Naturally, when Ronald Reagan came along and offered serious tax cuts, high net worth individuals were ecstatic. During the summer of 1980, there was a televised debate between the wizened Democratic spokesperson and the tall, handsome, charismatic Republican spokesperson over whether the Reagan tax cuts would pay for themselves through enhanced economic growth and cutbacks in federal programs (supply-side economics), or whether they would boost the federal deficit. The Republican spokesperson argued that benefits would "trickle down" to the American public. The Democratic spokesperson maintained that they could only lead to lower tax revenues.
Today, we know what happened. The U. S. federal deficit, as a percentage of Gross Domestic Product, after falling since the 1940's rose higher and higher for the next 12 years throughout the Reagan/Bush administrations. It fell during the Clinton administration, and then rose again during the second Bush administration, culminating in the (in my opinion, necessary) $770-billion Republican TARP program. (The Obama administration federal deficits have been absolutely unavoidable, given the economic legacy from the Bush administration, just as the early George Bush deficits and the 2002-2003 recession were an unavoidable economic legacy for GWB from the Clinton administration.)
The Reagan tax cuts reduced the tax burden for the very-wealthy from a 70% marginal tax bracket to a 33% total tax rate, with only a 20% tax, and since 2001, a 15% tax on capital gains. There's a 38% catch-up tax bracket, but the total rate of taxation can't exceed 33%.)
This would have been a monumental tax improvement for the wealthy.
(To be continued)