When Treasury man Tim Geithner told me last week in a CNBC interview that the Obama administration wanted a 20-20 limit on the tax rates for investor capital gains and dividends, it may have turned stock markets around 180 degrees from the nasty bear correction that began in late April.
No one, most of all me, wants to see any increase in these tax rates.
But the Geithner pledge created a lot more certainty, especially on dividends, which will not go up to the 40 percent personal tax rate on ordinary income.
So capital costs will only rise slightly after-tax, and investment returns will only decline slightly post-tax. Investors are breathing easier. This was a very constructive development, putting an end to all kinds of fears. Mr. Geithner deserves at least a tip of the hat.
Stocks, up today about 150 points, have rallied for six consecutive sessions. Plus, today’s trade figures showed a more powerful economy, at least in the month of May. While the trade gap widened slightly, exports are rising by 21 percent and imports by 29 percent. Both capital and consumer goods are booming on foreign sales and purchases. And the early profits reports are beating the street for the second quarter — including tech bellwether Intel, which surpassed estimates for both earnings and sales revenue.
There may be a slow patch in the economy, but in my view, at least the double-dip scenario has a very low probability. Plus, the news out of Europeis improving for both interbank funding markets and longer-term bond financing.
Really, over the next few months, the stock market outlook may be better than the economic-growth outlook.
But turning back to Mr. Geithner and his boss President Obama, the big question is whether the administration is calling a truce in its battles with business, banks, and investors. The language is certainly more private-sector, free-enterprise oriented. And allegedly, according to news reports, the White House is meeting with its critics from the Business Roundtable on trade and regulatory issues. Top BRT lobbyist John Castellani was quoted in the WSJ saying the administration gets an A+ for reaching out and an incomplete for policy.
I’ll have more to say on this when I put together a full column.
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