Doug Kass: Fiscal Cliff Worries Are Just ‘Noise’

Wednesday, 05 Dec 2012 11:02 AM

  Comment  |
   Contact  |
|  A   A  
  Copy Shortlink
Worries the United States will careen over the fiscal cliff and herald in economic and stock-market carnage are just noises and distractions that should be ignored, said hedge fund manager Doug Kass, president of Seabreeze Partners.

House Republicans and the White House are going back and forth with proposals to avoid the fiscal cliff, a series of tax hikes and spending cuts scheduled to take effect at the end of this year.

Failure to avoid the cliff could tip the country into a recession, according to the nonpartisan Congressional Budget Office, yet Democrats and Republicans remain at odds over extending tax breaks for the wealthy — Democrats oppose it, and Republicans support it.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

Separately, the president’s healthcare overhaul bill calls for tax hikes on investment income as well, applicable to dividends and capital gains.

Forget it, said Kass, as even if a deal isn’t reached or compromise is delayed, taxes on investment income in real terms won’t be widespread since a good deal of investors’ money remains in tax-deferred accounts in the first place.

Those who hold taxable holdings won’t sell and be subject to capital gains and other taxes, Kass added.

In addition, tax policies don’t greatly affect trading patterns historically either, meaning investors should spend more time preparing for fourth-quarter earnings.

Markets in the end will swing by a percentage point.

“I think the impact will be less than 1 percent, so effectively no impact at all. I don’t believe that either the tax or the fiscal cliff are the cliffs that we should be fretting about,” Kass told CNBC, adding “we should be fretting about the earnings cliff.”

“Less than 1 percent means that the impact of a rise in dividend and capital gains taxes are simply noise.”

Add to that, many investors are probably unaware tax hikes are set to rise, which would cushion markets.

“The calculation also assumes that everyone has an equal level of sophistication, and we know that’s not true,” Kass said.

“I would bet that 50 to 75 percent of people that own stocks in this country don’t even know that tax rates are rising.”

Other market participants note that with the fiscal cliff deadline just weeks away, stocks have remained arguably calm, though that could change at year-end.

“It’s possible that this comes down to the last minute, but that last minute is around Christmas,” said Sean West, head of the Eurasia Group’s U.S. practice, according to The Washington Post.

“Markets price-in things in advance. We’re going to see enough turmoil before the eleventh hour if it looks like a deal is falling off track that stakeholders will scramble to pull together a patch.”

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Stocks Crawl to Record Close Ahead of Thanksgiving Holiday

Wednesday, 26 Nov 2014 17:12 PM

The U.S. stock market inched upward to another record close on Wednesday ahead of the Thanksgiving holiday as investors  . . .

Harvard's Feldstein: Low Oil Prices Help US as Iran, Russia Suffer

Wednesday, 26 Nov 2014 16:30 PM

Harvard economist Martin Feldstein says "the low price of oil is good news for the United States economy, because it imp . . .

OPEC Heading for No Output Cut Despite Oil Price Plunge

Wednesday, 26 Nov 2014 16:13 PM

OPEC Gulf oil producers will not propose an output cut on Thursday, reducing the likelihood of joint action by OPEC to p . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved