Fresh from Bloomberg
” Feb. 2 (Bloomberg) — The Obama administration seeks a $970 billion tax increase over the next decade on Americans earning more than $200,000 and wants to take in an additional $400 billion from businesses even as it retools a proposed crackdown on international tax-avoidance techniques.

The administration budget released yesterday would reinstate 10-year-old income tax rates of 36 percent and 39.6 percent for single Americans earning more than $200,000 and joint filers making more than $250,000 as part of a broad $1.9 trillion tax increase proposal. It proposes to eliminate preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas. “

Liberated Stock Trader.

This news hot from Washington is important. The US has to refocus on reducing its deficit, Obama made this clear in his state of the Union speech. There are two ways to reduce the US Debt burden using Monetary and Fiscal policy.  Monetary policy changes could be to increase interest rates, but this is not an option in today’s environment. Fiscal policy changes could be to reduce spending.  Obamas hands are tied as he came to power promising more investment and reform specifically in health care, however the financing of huge investments in stimulus packages and job creation is taking its toll. Fiscally the US cannot withdraw the stimulus packages at this still critical point in the recovery.  Monetarily I imagine that later this year or early 2011 interest rate will rise.  Only a prime rate above 5-8% will have an extremely negative affect as we see from history.

This refocus is what the public want.  Pressure on low to middle income America is high and additional revenue generation from this part of the population will be difficult.  So the main target for increased taxes are the rich and big business.

How will the market react to this when trading begins today.  Well we are in a pull back at the moment and additional taxes on big business may affect the after tax profit forecasts.  The market participants like to signal their approval or disapproval at big news in the short term on the markets.    The future are slightly positive as I write this post, however we need to judge the markets reaction to this news carefully.  If the market continues the turnaround started yesterday this could be positive.  However I am also well aware that the Market might signal its distaste for funding huge spending plans by taxing the rich and business by continuing the short term downtrend into an intermediate one.  Wait for the market to tell you what is will do.

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