I know I’m repeating myself but I have no idea whether the reason was that no one got the point, everyone saw the point as being too obviously wrong to bother with, or everyone saw the point as being too obviously correct and thoroughly-stated as to require any followup:
Ultimately – considering collectively all owners of a stock over time, and not concerning ourselves with its changing hands – the reason a stock is purchased is for the net monies the investors will receive from dividends.
For example, if long term absolutely zero is expected to be paid, then except as a form of stamp-collecting, the value of the stock is zero. Or if the amount expected to be paid on an ongoing long-term basis is very high, then the value will be very high.
This is very basic and not really subject to being denied.
Now, suppose investors first fear, and then come to know, that corporate income tax will be substantially increased.
And second, that taxation on dividends will be greatly increased.
Let’s say that people’s willingness to pay money for a stock is such that they will spend X dollars to obtain net dividends (after they have been taxed) of $100.
Obama comes along and well, those evil corporations aren’t paying enough tax.
So,as amount paid in dividends is ultimately intimately related to after tax profits (not necessarily in any given quarter, but long term) if corporate tax goes up to where for every $100 of after tax profit there had been, now there is only say $65 left, that will long-term drop dividends down to 65% of what they were.
But wait, Mr Obama is not done yet.
Those evil investors are paying only 15% tax on their dividends. Obama will move that to 20%.
So, not only do the dividends expected to, long term, drop to 65% of what they were, but the investor can now keep only 80/85ths as much of that as he could previously.
Which leaves him with net dividends of only 61% of what would be the case without the Obama taxation.
Is it not reasonable then that the market would value stocks at only 61% of what the stocks had been judged to be worth without the Obama taxation?
And this is not even accounting for less growth in GDP, and therefore on average corporate growth, from the taxation increase. Or accounting for insistence on going ahead with cap-and-trade, or the tera-pork spending bill.
