Here's an interesting idea that's being floated over at Reuters. That the recent falls in Apple's stock price are in part being driven by the looming fiscal cliff. Or if you prefer, the part of it that is the expiration of the Bush tax cuts in January. The idea does indeed make sense even if it's not necessarily a complete explanation:
Gravity has taken hold of Apple, and a lot of investors have been smacked on the head.
Apple Inc, the largest U.S. stock by market value, was headed toward its eighth straight week of declines on Friday, as the rush to secure profits before a potential hike in capital gains taxes next year has investors dumping the market favorite.
In a little more detail:
With a stock like Apple, where investors may have large embedded capital gains as a result of its stellar run, selling now locks in gains and offsets the possibility of higher taxes next year. The uncertainty over the outcome of talks in Washington over the fiscal cliff has sapped the natural inclination to buy declining shares.
"Some of the selling is being driven by these tax decisions, but the flip side is there is not a lot of buyers because the buyers are procrastinating to see how the negotiations come out," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "You probably have an inordinate effect to the downside because of these tax strategies."
This isn't, of course, about the likely income tax rises on the rich that are assumed to be part of whatever solution is reached. The real problem here is that capital gains taxes are likely to bounce back to 35%. As are top rate income taxes on dividends likely to reappear.
There are good economic arguments why such rates should not rise to those on incomes. Very briefly, the first being that corporations already pay the corporate income tax. Taxing the profits both at the level of the company and then also upon distribution is double taxation: something that well designed tax systems try to avoid. That's why the current dividend tax rate is 15%: because a good chunk is already taken at the level of the company, in the corporate profits tax. And by the way, no, keeping foreign profits offshore doesn't help here. For while foreign profits kept offshore don't pay the US corporate income tax, profits kept offshore cannot be used to pay dividends. It's just one of those things, you've got to bring the money onshore to pay the dividend: and if you bring it onshore it's taxable.
The second is that in the economics of taxation is is a basic assumption (also a basic proof) that you want to tax capital incomes less than labour incomes. For it's investment that produces the wealth and jobs of tomorrow and if we tax investment returns people will invest less. Thus less wealth and fewer jobs in the future.
But leave aside these longer term points. People who have ridden the Apple stock in its surge over the past couple of years face a 15% tax bill if they sell now and a possible 35% one if they do in January. The thought is therefore that some goodly number of people are doing this. Something which is entirely possible as an explanation for the recent wilting of Apple's stock price.
