Wednesday, January 9, 2013
[T]he stock market rose sharply after the passage of the tax deal, which raised the top income tax rate and the rate on capital gains and dividends. This is the opposite of what should have happened according to Republican doctrine, which holds that the tiniest increase in tax rates, especially on the rich, is economically devastating. That got me thinking about the impact of other tax increases in history.
A little research showed that sharp increases in the stock market have often followed big tax increases. ... I have long suspected that when tax rates are low they make it too easy for investors to get an adequate after-tax return. When rates rise, they must work harder for a higher before-tax return to compensate for the higher taxes. This pushes money into growth sectors.
I’m not prepared to predict that the great bull market of the 2010s began on Jan. 2. But I do know that anyone who thinks tax increases never precede a bull market is wrong. History proves that.