If the stock market crashes, it could bite a number of parts of the economy, and bite them hard. There are several things that Congress could do to help the situation, although the government body is almost always slow to act.
The laundry list is short, but a 2,000 point drop in the Dow could wipe out the savings of many of America’s older citizens and some of the so-called baby boombers. With home prices falling, a big sell-off could take the net worth of many citizens to zero.
1. Eliminate the tax on dividends. This would drive buyers into many large cap companies which have strong yields. Companies like GE (NYSE:GE) are almost certainly a source of safe yields for shareholders even if the stock is at a multi-year low.
2. Open the strategic oil reserve. The government could "talk" the price of oil down by putting its own supply of oil into the market. Is there a risk? Yes. In the event of a huge interruption of supply coming into the country, the US could be caught short. But, high oil prices may be the greatest enemy of the stock market.
3. Allow investments in the market to be tax deductible for one year. A dollar into the market is a dollar taken off of income. The benefit of owning common shares goes up, even if the market continues to drop.
4. Give public companies a tax credit for the buy-backs of their own shares. Shrinking the base of stock outstanding increase EPS. This does not always increase share price, but it may in cases where companies have huge cash reserves. Microsoft (MSFT) may be one of the best examples.
5. Move private equity back into the market. The best way to do this may be for the Fed to supply banks with capital to lend to buyers by creating a facility that allows deals to be done with below market interest rates.
6. Take away all caps on the tax benefits of money put into IRAs. It encourages the purchase of stock for future retirement needs.
Of course, by the time Congress looks at any of these options, it will be the end of the decade.
Douglas A. McIntyre
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