The take from UBS floor guy Art Cashin probably perfectly sums up the Wall Street take on the new millionaire tax.
The Millionaire’s Tax – Three Observations – The expected proposal by the President to tax annual income above a million dollars may be too cute by half. It clearly looks like a “populist” initiative and a clever political manoeuvre. By setting the threshold at $1,000,000 it boxes out almost all the Republican allusions to small business entrepreneurs and hits a number associated with wealth in popular culture (“So You Want To Be A Millionaire,” etc).
But, it looks so much like an “in your face” political challenge to his opponents, that may have evaporated all that talk about “constructive compromise” that popped up after the disgraceful debt ceiling debate. Markets sold off after the debt debate on fears that if a real national crisis were to erupt, both parties would continue to posture in partisan acrimony as the situation worsened. We’ll see if the new tax proposal re-ignites those fears.
Secondly, the tax proposal is being dubbed the Buffett tax since Mr. Buffett has long proclaimed that it is unfair and embarrassing that he pays taxes at a lower rate than his secretary. That could be instantly remedied by Mr. Buffett (or one of his accountants) by listing his income as ordinary income on his 1040A. Then he would be taxed at a rate equal to, or, more likely, higher than his hard working assistant.
Third, the proposal flies in the face of the lessons of history. According to the Tax Foundation, after the 1929 crash, Congress proceeded to raise the top marginal tax rate from 25% to 63% by the end of Hoover’s term (hat tip to the sharp-eyed Mike Higley’s “By the Numbers”). As you may recall, hiking those rates may have made folks feel that rates were more equitable but it sure didn’t help the economy. Just a few thoughts.
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