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  • aretired_1998t aretired_1998t Nov 7, 2012 1:36 PM Flag

    Gross: Fixing 'Cliff' Will Mean 'High, Higher' Taxes

    Gross: Fixing 'Cliff' Will Mean 'High, Higher' Taxes
    By Jeff Cox | CNBC – 3 hours ago
    A newly re-elected President Barack Obama will push for higher taxes -- including a div idend-tax hike that will cause a substantial drop in stocks, Pimco's Bill
    Gross told CNBC Wednesday .
    Obama will get little time to enjoy his election v ictory Tuesday , as he will hav e to get to work quickly with Congress to av oid
    the nation's "fiscal cliff" of looming mandated tax increases and spending cuts.
    One likely remedy for rev enue-raising will be to take the current div idend tax rate of 1 5 percent and hike it fiv e to 1 0
    percentage points, said Gross, co-CEO at the firm that runs the largest bond fund in the world and has $1 .8 trillion assets
    under management.
    "Obama ran on a higher-tax agenda," Gross said during a "Squawk Box" interv iew. "Marginal income taxes go from 35 to 40
    (percent), capital gains from 1 5 to 20, div idends from 1 5 to who knows they could go high, high and higher."
    (Read More: Romney's Defeat: Not Enough 'Angry White Guys'?)
    Risk-av erse inv estors prefer div idend stocks, which are common in pensions and mutual funds ev en though they 'v e largely
    underperformed other market indexes ov er the past four y ears.
    Consequently , Gross said, higher div idend taxes would make those companies less attractiv e and thus take the stock market
    down 5 to 1 0 percent.
    That's "the ultimate danger here for the stock market," he said. "Div idends are sheltered in 401 (k)s, they 're sheltered in
    pension funds. At the margins inv estors pay div idend tax rates. To the extent that y ou raise them from 1 5 to, say , 25 (percent), that implies in terms of equaling
    after tax rates another 5 to 1 0 percent down in terms of stock prices. We'v e been v ery spoiled for the last 1 0 y ears."
    Gross is not alone in his concerns ov er tax structure.
    Ron Florance, managing director of inv estment strategy at Wells Fargo Priv ate Bank, said he is positioning clients for the rougher tax road ahead.
    (Read More: Surprisingly, Obama Won on the Economy)
    "We believ e taxes are going to go up," he said. "If y ou can, pay taxes this y ear v s. next y ear. We are recommending doing that. Normally we encourage delay ing
    In addition to the div idend taxes, Florance said inv estors should remember that other taxes will rise as well.
    "The estate tax env ironment is going to change dramatically ," he said. "You hav e six weeks to get this done. The estate taxes will not be this fav orable for the rest of
    our natural liv es. So for clients in that bracket, this is a pretty critical six weeks."
    The election v ictory giv es Obama "a larger bargaining chip" that will force Republicans to accept higher rates, Gross added.
    "Certainly we're looking at something higher than 1 5 percent, and that's not positiv e for stocks. On the other hand that's a positiv e for municipal bonds, which are
    tax-free," he said. "The stocks that hav e high div idends, they will be at risk."

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