Skip to comments.Gross: Fixing 'Cliff' Will Mean 'High, Higher' Taxes
Posted on 11/07/2012 8:44:18 AM PST by Hojczyk
A newly re-elected President Barack Obama will push for higher taxes -- including a dividend-tax hike that will cause a substantial drop in stocks, Pimco's Bill Gross told CNBC Wednesday.
Obama will get little time to enjoy his election victory Tuesday, as he will have to get to work quickly with Congress to avoid the nation's "fiscal cliff" of looming mandated tax increases and spending cuts.
One likely remedy for revenue-raising will be to take the current dividend tax rate of 15 percent and hike it five to 10 percentage points, said Gross, co-CEO at the firm that runs the largest bond fund in the world and has $1.8 trillion assets under management.
"Obama ran on a higher-tax agenda," Gross said during a "Squawk Box" interview. "Marginal income taxes go from 35 to 40 (percent), capital gains from 15 to 20, dividends from 15 to who knows what...so they could go high, high and higher."
Risk-averse investors prefer dividend stocks, which are common in pensions and mutual funds even though they've largely underperformed other market indexes over the past four years. Consequently, Gross said, higher dividend taxes would make those companies less attractive and thus take the stock market down 5 to 10 percent.
That's "the ultimate danger here for the stock market," he said. "Dividends are sheltered in 401(k)s, they're sheltered in pension funds. At the margins investors pay dividend tax rates. To the extent that you raise them from 15 to, say, 25 (percent), that implies in terms of equaling after tax rates another 5 to 10 percent down in terms of stock prices. We've been very spoiled for the last 10 years."
Ron Florance, managing director of investment strategy at Wells Fargo Private Bank, said he is positioning clients for the rougher tax road ahead.
(Excerpt) Read more at finance.yahoo.com ...
Obama will say I tried to work with the GOP...but he will let all the tax cuts expire and have more money to buy votes..as for the debt ceiling the House will cave and get nothing like last time...and our money will be worth nothing
My guess is that they will also go after tax exempt municipal bond funds.
They’ll have to tax 0bamaphones and EBT cards if they want to raise any real money.
They’ll have to implement a wealth tax.
They can try to raise taxes to 300% of income if they want... once.
Regardless, not enough money exists to avert the fiscal cliff.
Lefties - you own it. I’m simply going to prepare for the demise that you brought upon us.
Theres not enough more tax in the world to fix the spending.
I’m not a big stock owner, but do have some, outside my 401k. When the market bounces back from today’s nose dive, I’m out.
Screw it, time to hoard cash and hard assets.
Tax increases are now inevitable. 0bama has all the cards, we are stuck with Boner in the House. Boner will cave and get the House to simply sign what 0bama puts in front of him. We will get massive tax hikes to go along with the continued runaway spending.
Big Recession next year. It will all be the Republicans fault, because the media will tell the sheep what to believe.
The “fiscal cliff” may be our only HOPE. higher taxes won’t affect many Obamatrons...but any cut in federal spending (even defense) will be good... painful, but we gotta start somewhere.
That didn’t take long did it? The continuation of that vicious cycle of self destruction and national suicide. The government will not actually be getting more money in the end. All they can do is continue looting existing wealth because there is not new wealth being created in this country. We are loosing jobs and capital at record speed and this will not help matters. Never think for a moment that they do not know what they are doing.
Whoa here: If anyone thinks Obama will pay more than slight attention to Sequestration they are crazy.
That is exactly what he wants.
Tax Hikes and killing the military by cutting funds.
Also, there goes the retirement income of a lot of people.
Actually, if the House gives The Dictator what he wants, and they play it right (no small feat for these guys), it should play into their hands perfectly.
They will be able to say “we gave him what he wanted...and NOW look at this mess”.
Of course, it will create a huge recession, and many of us will lose our jobs, but politically, it could work out.
Before I end this post...I just want to say that I don’t WANT this to happen. I honestly don’t think Boner and/or McConnell are smart enough to get out in front of this and make it work. If the Republicans had balls, it could work. Unfortunately, they don’t.
Other than some current investors, that's really a tax on cities and states. If a wealthy person has to pay taxes on the bonds, then they'll demand more interest from the cities and states issuing them to make up for the taxes.
And since even THAT won’t satisfy Liberal demands, the goal posts will be in flux FOREVER.
The Government will re-define ‘rich’ on a daily (probably an hourly) basis, so they’ll miss no opportunity to grab our cash!
I can almost hear the ear-splitting, metal-on-metal sound of train wheels screeching on the rails... what a sound, and what an event when OTHER PEOPLES’ money runs out!!
It's what's for dinner.
Until he seizes the 401K's.
“Until he seizes the 401K’s.”
I know. And I know I’ll be punished for sacrificing, having discipline, and having a 401k that’s worth something.
I can only do so much, and the takers are in charge now. They’ve voted in a man who will take from us, and give to them, and they’re partying like crazy.
I wish I had an option, but I’m powerless.
half the sheeple will still blame Bush.
They will be able to say we gave him what he wanted...and NOW look at this mess.
The quickest road to American renewal, at this point, is to give the left everything it wants and watch society quickly crumble like a house of cards. Like pulling off a band-aide. Do it quickly, and four years from now we'll have real change.
And in some ways they'd be correct:
1) Bush set the standard for unbridled illegal immigration in order to give Walmart etc. a cheap exploitable labor force.
2) Bush bailed out rich, irresponsible liberal Democrat bankers in NYC at the expense of everyone else. This set the precedent for Obama's TARP II and GM bailout, which lost us Ohio.
3) Bush and Delay set us on the road to fiscal ruin by officially adopting the Democrat model of giving free stuff to people as a means of buying their votes, meaning we no longer had an anti-handout opposition in the entire country.
4) Bush set the standard for the rise of the American police state with the Patriot Act, Homeland Security, and the TSA. He did this to avoid the politically incorrect, but logically prudent policy of racial profiling.
In the end, Obama's fiscal and economic policies are nothing but a continuation of Bush's second term. The irony is that Obama ended up being "four more years of George Bush."
let it all come....let it all fail....
I will pressure my senators to refuse to work with obama on the dems on this mess unless it is in the context of spending cuts. If that mean tax cuts expire then so be it. The only thing we have left right now is to muck up the works.
I don't understand TARP and now we will never know where that money went...but even Glenn Beck implied that it had to be done...
Untrue. If the banks had failed, there would have been NO loans to ANYONE for a long, long time.
Housing would have dived further, many more business would have failed for lack of credit.
What Bush did were LOANs, not bailouts and the TARP has mostly been paid back. What Obama did was bailouts.
Obama's Porkulus was the bailout (not loan) which we will never see again.
Federal revenue never exceeds 20% of GDP.
We’re at 19%.
Raising tax rates won’t help.
Bush did all that, yeah, and damn him. But now perhaps the time is right for a wider perspective. If you’re gonna go back to 08, 04, 02, you gotta go back to the last guy and the last guy. The real tipping point was 1937. The states stopped mattering in 1865, and the electorate gave up in 36. SCOTUS was the last holdout, and caved in despite popular perception only after FDRs packing scheme failed. Why I’ll never know, but they handed the keys to the kingdom over, and the gates were open.
Then it was only a matter of time. How long could accumulated capital—physical, psychological, cultural, etc.—hold out against the more, more, more assumption of the basic functions of life by the central state? How much ruin could there br in the nation? Well, I have no idea, but I do know we’ll find out, because there’s no stopping the juggernaut. The so-called Reagan “revolution” rearranged slightly the deckchairs, no more.
Firstly, companies are not normally coerced into taking loans. Secondly, loans are normally structured, and not left to be repaid, if ever, whenever the borrower gets around to it. Certainly they aren’t considered to have been theoretically repaid merely because they could be repaid, or could were the business was liquidated, but aren’t in fact. Thirdly, loans normally cost something. Finally, loans normally aren’t a given on the side of the lender, and can’t be relied upon in the future because the lender had guns and can take people’s money and the Too Big to Fail philosophy has been by implication permanently in force.
Nevertheless, they were loans which have been mostly paid back and not "bailouts".
Problem is, hyper-inflation is possibly coming and will wipe out your cash assets. I'm in the same bind. Whether to sell off stocks and bonds now and convert to cash and other assets that accumulate minimal interest offset by higher taxation and inflation, or to ride out the losses until better times. Last couple big downturns, I stayed in the market and rode it out and my assets grew. If I sold, I would have lost most of it. Converting to metals is a gamble (but better than holding lots of cash). Putting it in property is also a gamble. We're losing ground all around.
I don’t think you will see any taking of 401(k)’s, at least not directly.
Instead, you will see means testing of Social Security and Medicare, so that your post-retirement net spendable income is nearly the same whether you have a 401(k) or not.
Agreed, Sequestration will be his way of saying”don’t blame me, it was the radical tea party congress fault for not working across part lines”.
Democrats in Congress were looking into that after he was elected the first time. I have to think it will happen again.
“really a tax on cities and states”
That would be classic, since the feds now pay for so much that cities and states used to pay for...
A story as old as civilization.
And a side dish of seed corn!
Let ‘em blame Bush.....while they’re dumpster diving for something to eat. It’s already happening in New York.
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