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Aside from the tax rate on the wealthiest, Wall Street is also worried that Congress will allow the tax rate on capital gains and dividends to rise. The current capital gains rate is 15 percent; if Congress does nothing it will rise to 20 percent. The dividend tax rate is currently 15 percent; if Congress is stalemated it will rise to a maximum of 36 percent. Both rates will also rise an additional 3.8 percent regardless of what Congress does because of a Medicare surcharge that is part of Obama's health-care law.
The prospect of capital gains and dividend rates rising, may also be another reason the stock market is falling, says Mr. Stovall.
“The prospect of those rates rising is incentivizing investors to lock in a much lower tax rate in 2012 than they expect to see in 2013,” he says.
Wall Street investors are also worried about the continued dilemma over Greece. Dickson is telling clients that “Greece is still an unsettled deal.”
He says the concern in the market is that the nation appears to be consistently missing budget targets. “It will be hard to present a case for another round of bailout funds,” he warns.
The last time the stock market had a good year but then tanked after an election was in 1948 when President Harry Truman surprisingly defeated Gov. Thomas Dewey. Leading up to the election, the S&P index was up 9 percent. It then fell 12 percent for the rest of the year.
If the stock market were to repeat that performance, the S&P which is currently 1,381 would fall to 1,270.
“If there is any consolation, the S&P rose 10 percent in 1949,” says Stovall.