posted 10-06-2004 10:32 AM         

(reprint)

By Dan S. Kennedy

Both Johns favor raising capital gains taxes.

Edwards is the most outrageous. His stated position is that, to paraphrase very close to verbatim, the rich guy sitting poolside receiving dividend checks should not pay less tax on that unearned money than the tax the hard-working schoolteacher pays on her wages. Edwards advocates capital gains tax rates and income tax rates being the same.

This would jump the 15% capital gains tax rate to, what, 35%? 38%?

Obviously the rich guy vs. hard-working schoolteacher speech is bull. But it sounds good to the overwhelming majority of Americans so ignorant of economics they can't count out change or balance a checkbook.

Just to quickly address it, it ignores the fact that the rich guy already paid income taxes on all the money, then invested what he had left over, in order to create capital gains. He is being double-taxed.

It ignores the fact that the school teacher is hopefully investing and invested. Will someday be dependent on dividends, pension fund withdrawals, etc. subject to capital gains taxes.

It plays the class warfare card, drawing a silly black and white, this or that cartoon between "working people" and "rich people", implying that rich people don't work.

It ignores the fact that low capital gains taxes encourage investment, which create jobs, so people buy houses and pay property taxes, so the school teacher can have a job.

It ignores all that.

Nonetheless, we have but two choices regarding Edwards. We can assume he is a smart, bald-faced liar, telling people this to get votes, with full knowledge such tax policy is asinine and would bring the entire economy to a grinding halt. Or we can assume he has some integrity and means what he says.

Kerry is not as "out there", but still, Kerry favors increasing capital gains taxes. Both promise to do so.

The risk that they might keep a promise like this is for you to judge. My own judgement is, it's too great a risk to ignore.

So, should Kerry-Edwards get elected, I will move very quickly to sell all my real estate, interests in real estate, my own home, stocks, bonds, every appreciated asset, and to liquidate my business and extract all its cash, while the 15% rate exists.

I will sit on my cash.

If need be, I am in a position to cheerfully spend the principal, live without compromise, and not run out of money before departure, so I need never re-invest nor suffer angst over lost income or appreciation.

Of course, my own little exodus from all investments into cash isn't going to have any significant effect on any economy, local or national. I am but a grain of sand. However, I've had this discussion with quite a few wealthy investors. A few who might be cashing out with more millions than I. Surely those I know and talk with are not alone in reaching this determination.

As a matter of fact, we believe a Kerry-Edwards economy will very quickly look like a Jimmy Carter economy. Double-digit inflation, double-digit interest rates, capital dried up like the Mohave desert, business bankruptcies up, real estate foreclosures soar. By late 2006 into 2007, cash will be king. All sorts of assets to be purchased at record low prices. Those sitting on the sidelines with all their cash, watching the devastation, can pick the point to re-enter, to buy. That might be 2007 or 2008. It might not be for another four, eight or twelve years.

Oh, and a lot of those hard-working school teachers are going to lose their houses.

posted 10-06-2004 11:27 AM         

Other than that, your post is 100% on the money (no pun intended), and I couldn't possibly agree more.