New Economic Team, Will Markets Improve?

In the midst of fighting the war on terrorismand a potential conflict with Iraq,President Bush faces a serious challenge:spurring economic recovery. During thepast year, while the president's approvalratings have remained high, his ratingswith respect to the economy have slidsteadily from over 60% to less than 50%.

SPEEDING UP TAX RELIEF

In what many saw as an aggressivestep toward boosting his standing, PresidentBush recently took action to replace2 members of his economic team: formerTreasury Secretary Paul O'Neill andNational Economic Council leader LarryLindsey. Their replacements will likely bemore polished spokespersons for thepresident's economic objectives, whichinclude accelerated tax cuts and new taxincentives to spur the economy.

Bush's retooled economic team isexpected to seek support for extending,accelerating, and even making permanentmany of the cuts implemented in the 2001tax relief package, which in its currentform is expected to reduce taxes by $1.35trillion over 10 years. Early estimates saythe new tax package may reduce taxes byan additional $300 billion over 10 years.

ADDING NEW INCENTIVES

To attract support from Democrats, theplan includes measures that target middle-income taxpayers, including the accelerationof income tax rate reductions thatwere scheduled for 2004 and beyond. Theadministration also hopes to increase thechild tax credit. And it plans to acceleraterelief from the so-called marriage penalty,a tax law structure that forces some dual-incomecouples to pay more in taxes thansingle filers earning the same income.

For years, corporations and investorshave complained about the double taxationof dividends, which are taxed onceas corporate profits and then again asinvestor income. Bush's new economicteam may be tasked with convincingmembers of Congress to reduce dividendtaxation, either by allowing investors toexclude a certain amount of dividends orby taxing them as capital gains. Thiswould mean lower taxes for physician-investorswho invest in high-yielding dividends.Many believe this type of dividendtax relief could help draw investorsback into the stock market.

Another measure meant to improvestock appeal is an increase in the capital-losswrite-off. Under the current law,capital losses can be used to offset capitalgains for tax purposes. But even if aninvestor has no capital gains, they candeduct net losses of up to $3000 againstwages and other income. And anyunused losses can be carried into futureyears. The administration hopes to increasethe limit to over $8000, furthercushioning the risks physician-investorsface in stock investing.

Bush's new economic team could helppave the way for additional tax relief in2003. Hopefully, the package will stimulatea return to robust economic growthand provide a welcome boost to financialmarkets, which all investors could use.

Scott J. Kleiman is an independent

advisor with LG Financial

Services, located in

Owings Mills, Md. All securities

offered through Linsco/

Private Ledger, member SIPC.

Past performance is no guarantee of future

results. The information presented is the

opinion of Scott Kleiman and not that of

Linsco/Private Ledger. He welcomes questions

or comments at 866-651-4168 or

scott.kleiman@lpl.com.