The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Apr. 17, 1997)

If you've read my columns for any length of time, you've probably heard me rant and rave about the absurdity of the tax system that systematically penalizes saving. Is it any wonder our national debt is as out of control as it is, given a mind set that says "if you're not in debt and actually saving and investing, we must stop you"?

In the current budget dance, however, it's possible that we may see a reduction in the tax on capital gains (at least on long-term gains). If that comes about, it raises some very interesting questions.

First, will such a tax reduction unleash a torrent of selling, with long-time stock holders unloading positions they've been afraid to sell because they have decades of gains built into their positions? I don't have an answer to this one, but my suspicion is that such a selling binge will be far less critical than some claim.

More importantly, if the short-term tax rates don't change and the long-term rates get cut to 15% or 18% (do we dare hope for lower?), it may change the way many of us look to manage our portfolios.

As the tax code stands now, one has to be in the 31% tax bracket before any advantage is realized by holding a stock a full year (and a day) to qualify as a long-term gain. The vast majority of individual investors aren't affected by this "break" on long-term gains. It takes nearly $100,000 in taxable income to push one above the 28% bracket.

With a rate reduction to 15% or 18%, though, the incentive to hold stocks a full year becomes relevant to a great many more investors and may make short-term trading and speculation much less attractive.

Ideally, of course, all capital gains would be tax exempt, not as a break for "the rich" as the Democrats love to claim, but as an incentive to citizens on all economic levels to save and prepare for retirement. Sure, tax the income when it's earned. But to tax it again when it's saved after the earnings are taxed at the corporate level already is double, perhaps triple jeopardy. Some states stick it to you again and have an intangible property tax on top of it. Pay a tax just to own the stock. Makes sense, doesn't it? (Fortunately in Kentucky, the intangible property tax was just shot down and everyone's due a refund for the last few years. One tax down, several to go!)

I still believe a national consumption tax (with an exemption on food) makes a whole lot more sense. Easy to administer, it eliminates the loopholes available to those with the most. It's progressive in the sense that those who spend the most pay the most taxes. It encourages fiscal responsibility and wipes out the annual nightmare we all just went through. In short, it makes sense, so of course, it hasn't a prayer.

Okay, I'm off my soapbox. Fool on!

Monthly Growth Screens
(Jan. 3 to present)
 16.14%  Relative Strength  
  1.83%  S&P 500 Index  
 -1.30%  YPEG Potential  
 -1.85%  Low Price/Sales  
-11.53%  Investing for Growth  
-18.50%  EPS Plus RS  
-24.46%  Unemotional Growth  
-25.27%  Formula 90  

Annual Value Screens
(Jan. 1 to present)
 4.77%  Dogs of the Dow  
 3.26%  Dow Jones Ind Avg  
 2.73%  Beating the S&P  
-2.62%  Dow Combo  
-2.69%  Unemotional Value  
-2.69%  Beating the Dow  
-7.16%  Foolish Four