How A Favorable Outcome To The War May Affect Your Dividends
From an economic point of
view, there is a lot more riding on a
favorable outcome to the war in Iraq than lower oil prices and better consumer
and business sentiment…
Earlier this week, the President’s stimulus
package received a big setback when the Senate voted to cut the $700-plus
billion tax-cut package in half. Dissenting Senators expressed concern that a
prolonged conflict would create further fiscal strain on an already burdened
budget and that the original size of the package was too big, considering the
current uncertainty.
More importantly, however, the vote now calls
into question the survival of the proposed elimination of double taxation on
stock dividends, as this part of the stimulus package is an integral component
of the bullish economic forecasts that many participants have made over the past
couple of months. These forecasters correctly argue that the elimination of
double taxation on dividends would prompt investors to allocate significant
financial capital to these assets, since real returns would increase, and stock
prices would get a boost.
A shorter war would therefore would mean fewer
expenses for the government and would convince more legislators to vote in favor of
a more comprehensive stimulus package–not to mention that a favorable outcome
would elevate the President’s popularity, making it all the more difficult to
vote against his proposals.