TAX CUTS UNLIKELY TO ROCK MARKET.
The capital gains tax cuts, if they're eventually signed into law, might trigger some selling in the short-term but won't cause a big decline in the stock market overall, analysts said Tuesday.
``The whole purpose (of the cuts) is to encourage investment in general,'' said Larry Wachtel, a market analyst at Prudential Securities in New York. ``If it does unleash selling, the money will stay in the market.''
On Monday night, the White House and Congress reached a tentative agreement on a plan to balance the budget by 2002 while providing Americans with tax cuts across a variety of sectors. Among the most anticipated was a cut in the capital gains tax; that is, the taxes investors pay when they sell stocks at a profit.
In the long run, the cuts will benefit the market because the lower tax rate will attract more capital, said Ken Janke, chief executive officer of the National Association of Investors Corp. in Madison Heights, Mich., a nonprofit group for investment clubs.
And while these tax cuts are welcomed by investors, they won't be enough to trigger a flood of selling, Wachtel said.
``Am I going to sell it because it's 20 percent and not 28 percent?'' he said. ``Am I going to ignore the long-term potential of the company?''
Selling a stock because of tax cuts without considering other investment factors is a bad reason to bail out, said Charles Colson, editor of Dow Theory Forecasts, a newsletter in Hammond, Ind.
Investors seem to agree. On Tuesday, news of the tax cuts didn't roil the markets. The Dow closed at 8,174.53, up 53.42 points and setting another record.
Jean Wagstaff, a 67-year-old retiree in west Palmdale, has been waiting for a cut in the capital gains tax rate yet is in no rush to cash out her portfolio.
She said she'll hold onto her stocks because she believes the Dow will be at 8,400 by the end of the year, ``and I think I'm very conservative on that.''
``I won't sell now because there's no point to it. Even if I did, I would reinvest it in another stock,'' she added. ``If I have a good stock, why should I sell it? I know they are as good as gold. (The tax cut) will give me more temptation to sell, but just for that reason alone, no.''
CAPITAL GAINS TAX CUT
If approved by Congress, the capital gains tax will be reduced for couples earning more than $41,200 from 28 percent to 20 percent. The tax would drop from 15 percent to 10 percent for lower-income couples.
The 28 percent rate further drops to 18 percent after 2001, for investments held more than five years for middle-income individuals and to 8 percent for lower-income investors.
But middle-income couples must hold the assets for five years starting at 2001, meaning they can't get the 18 percent rate until at least 2006. This rule does not apply for lower-income investors, who can use the 8 percent rate in 2001 for stocks they've held since 1996 or earlier.
Photo: (Color) Vice President Al Gore listens as President Clinton speaks Tuesday about the budget compromise at the White House.
Box: (Color) CAPITAL GAINS TAX CUT (See text)
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Jul 30, 1997|
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