Sunday, April 10, 2011

Personal Experience - The Effects of Uncertainty

Light blogging this weekend as I struggle with finishing up my taxes. However, the difficulty I am having is illustrative of the perils of uncertainty that the Democratic Congress and the President put us in last year. Last year, before the election, the Bush tax cuts, including the reduced capital gains tax was set to expire. I needed to sell some investments to pay for some home improvements and also to position myself to re-finance the house. Mrs. Daddy and I have sworn off taking on any more debt, especially debt at variable interest rates. But I also didn't think the reduced capital gains tax rates were going to survive, because Obama seemed likely to veto their extension. I sold significantly more than I needed. Since the assets were purchased in the mid-90s over many months and years, determining the capital gains basis isn't easy. Yes, I have software to help me, but it isn't spitting out the answers in a breakdown that is easy to enter on schedule D.

The point I want to make is that the uncertainty of the tax code provided incentive for me to move money out of stocks, where it was invested in profit making businesses and into cash, where it was available for loan making, perhaps, but this still impacts business' ability to raise capital. Given that the gains rates are still set to go up in two years, it makes me wonder if I shouldn't take other profits now, to lock in the lower rates. I know I am one investor, but I am also certain that many other investors are applying the same calculus to their portfolios.

1 comment:

  1. I think you represent a HUGE portion of the financially literate American population that are hedging in favor of caution and preservation...out of limited faith in our law makers.