With stocks rallying in all three major indices, this is as good a time as any for investors to think long and hard about taking some profits off the table, CNBC commentator Larry Kudlow says.
With tax hikes expected to hit after the expiration of the Bush tax cuts on Jan. 1, 2011, Kudlow writes on CNBC.com that investors should seriously consider selling into any stock market strength ahead of the tax deadline.
"Doing this will enable investors to lock in a lower capital-gains tax this year and beat next year’s higher rates,” he says.
“It’s a lesson investors literally cannot afford to forget: If after-tax investment returns decline, because the key capital-gains tax rate and other investment taxes go up, the future value of stocks is damaged. “
Kudlow’s views are in line with economist Arthur Laffer, who recently warned that next year’s tax hikes will cause today's corporate profits to tumble next year — probably right after a stock market collapse.
“My best guess is that the train goes off the tracks and we get our worst nightmare of a severe 'double dip' recession,” says Laffer, chairman of Laffer Associates and inventor of the Laffer Curve.
“Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts,” he wrote in the Wall Street Journal. “Tax rate increases next year are everywhere.”
But Brian S. Wesbury and Robert Stein of Forbes disagree.
“While we disagree with him about 2011, we agree that over time higher tax rates in the U.S. will help shift business toward countries with lower tax rates,” they recently wrote in Forbes.
“Unless, that is, we see another major shift in policy like we did in the mid-1990s.”
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