President Barack Obama’s push to increase taxes on upper-income earners unleashed a form of economic stimulus in recent weeks. Some companies increased dividend payments to distribute money to shareholders before rates go up. And investors sold shares to reap gains before the New Year.
The possibility of higher tax rates doesn’t fully explain these trends. For companies that had surplus cash, it made sense to return some to shareholders. And even without a looming tax increase, the timing was right for investors to sell some stocks after a strong year on Wall Street.
But it’s clear that the political climate — the probability of higher taxes and the high level of uncertainty about the nation’s fiscal path — has influenced investors.
Viewed from the left, the investors’ gains show how the economy is rigged for the wealthy, allowing those with money to cash in even when the economy struggles.
Viewed from the right, this year’s performance — in particular fourth-quarter dividend payouts by companies and sell orders by investors — shows how tax policy affects economic decisions.
To a degree, both arguments are correct. So the real question is what economic policymakers should do because of these trends. Whatever they do, it’s important to remember that the stock market and economy do not necessarily react to political and financial events in the same way.
This year’s market gains in part reflect a relatively low starting point and the lack of other attractive investments options. As a result, stocks increased in value across the globe in countries with all types of governments and economies.
Instead of focusing on winners and losers, public officials in Washington, D.C., should concentrate on addressing problems that undermine the economy.
Investors, whether individuals or companies, need a more certain operating environment.
Those on the lower end of the income scale need more opportunities.
Who knows where the stock market will finish in 2013. But if Congress can provide more certainty and opportunity, it’s a good bet that more Americans will have something to toast next New Year’s Eve.