- Today's announcement of a radical new tax bill is more grandstanding than potential reality.
- With the 2008 elections upcoming, a gridlocked Congress, and a presidential veto, no meaningful legislation has much of a chance of passage.
Our populist friend Congressman Charles Rangel today proposed one of the most heinous tax bills in recent memory.
(Editor's Note: As always, MarketMinder is politically agnostic. Our political analysis is rooted in understanding politics' direct effect on markets and the economy, no matter which side of the aisle it comes from.)
Giant Tax Overhaul Bill Unveiled
Jeanne Sahadi, CNNMoney.com
Mind you, Mr. Rangel is chairman of Ways and Means—a powerful and influential committee in Congress. So this proposal should be taken seriously! But, we must admit, it's difficult to earnestly consider the bill. Congressman Rangel himself has a storied history of histrionics and outlandish proposals that rarely come to a vote let alone pass.
While the announcement grabbed headlines today, this has all the makings of classic political grandstanding and little more. There's virtually no way this legislation, in almost any conceivable format, will make it past committee, both houses of Congress, and Bush's veto pen. What's more, such a bill would infuriate many voters heading into an important election year. (We're pretty confident most members of Congress will not want to alienate their voting base just months before the polls open.)
At once comedic and enraging, it's fun to read through some of the bill just to get a flavor of its intricate absurdity. Somehow the bill is described as a tax "reform." From what we can discern this clearly is a tax increase, and a rather large one at that. By shifting some of the tax burden based on income disparity, Mr. Rangel, creative rhetorician that he is, manages to call this a tax cut.
It gets weirder. The bill is filled with all sorts of strange tax miscellany like penalizing married couples with higher tax rates based on the proposed new surcharge. Another good one is the bill promises to "guard against potential transgressions of the tax code." Which is a ridiculous way to say, "It's illegal to not pay your taxes." Well, duh.
Such tactics are an assault on common sense. This is without question an attempt to increase taxes but explain things in a convoluted way to make the public think it's not so bad. In many ways this bill is par for the course—just a few extra pages added to one of the largest, most indecipherable books ever written: The US tax code.
MarketMinder has spoken before about ways the government could derail an economy and halt a bull market:
Consider this a great example of how it could happen. Luckily, it's a virtual certainty this bill will never make it out of the House. This has been one of the most do-nothing Congresses in memory, and we feel very confident it's going to stay that way. That this bill is so ridiculous is all the more evidence—it seems as if even its proponents know there's no chance of passage.
Here is a cogent piece on why tax changes can be so disruptive to an economy:
The Truth About the Top 1%
Alan Reynolds, The Wall Street Journal (*site requires registration)
A significant tax increase poses a risk to the economy and stock markets, but this one has no real potency. It's likely just more noise from a Congress busy doing nothing—a very bullish feature for stocks looking ahead.