Congress passed a $350 billion tax cut package this morning by a narrow margin as the Senate was deadlock at 50 for and 50 against, and when that took place, government policy allows the Vice President to vote, with Vice President Dick Cheney casting the tie-breaker in favor of the tax cut package.
The bill will now be passed to President Bush later today, who is spending the weekend at his ranch in Crawford, TX.
President Bush isn't going to get his originally proposed $726 billion plan, but the plan did include most of the items President Bush's original tax proposal unveiled in January.
The plan significantly scaled back President Bush's main proposal that aimed at fully eliminating the income tax paid by individuals on previously taxed corporate income distributed as dividends. Instead, the plan follows a House proposal that cuts the tax on capital gains from 20% to 15% for most individuals, then drops the tax rate on dividends to the same rate.
Lower-income investors would be taxed at a 5% rate on dividends and capital gains. The rate for lower-income investors would drop to zero in 2007. Under current law, dividend income is taxed at personal income tax rates as high as 38.6%. To hold down the overall cost of the bill, the capital gains and dividend tax rates would revert to current law in 2008.
Some Washington watchers do make note that while the President didn't get his originally planned $726 billion tax cut for the American people, should Republicans hold control of the House and Senate in 2008, then the dividend tax cut, might be extended past 2008.
The news did find a bid coming into the major indexes and giving them a lift from the lows of the session, to now trade into positive territory.
The Dow Industrials (INDU) 8,604 +0.11% are higher by 9.3-points, with breadth positive at 17 to 13. Telecom components AT&T (NYSE:T) $19.38 +4.41% and SBC Communications (NYSE:SBC) $24.72 +2.14% lead component gains. The current dividend YIELD on T is 4.04%, while SBC's dividend YIELD is 4.46%.
Sector action is broadly positive with the Dow Jones Home Construction Index (DJUSHB) 414.77 +3.4% leading today's sector winner's list. Yesterday we noted this index breaking to an all- time high. The Utility Index (UTY.X) 284.58 +2.67% was strong out of the gate this morning and holding near its session highs. Most likely finding bullishness in anticipation of today's tax- cut news on dividends.
The S&P 500 Index (SPX.X) 933.26 +0.14% struggled in the early morning session, but intra-day technicals begin to unfold more bullish as the SPX reclaims its WEEKLY S1 of 932.9. Morning lows of 927.42 found buyer's support just above the DAILY S1 of 924.51, which we were monitoring for support in this morning's market monitor.
Tech-sector gains, while marginal, have the NASDAQ-100 Index (NDX.X) 1,131.97 +0.04%, with index heavyweight Microsoft (NASDAQ:MSFT) $24.40 +0.95% rebounding from a weekly decline. Microsoft's CEO Steve Ballmer confirmed that he is selling some of his holdings in Microsoft, but stated, "I remain excited about the potential for our technology to change people's lives, and I remain committed to Microsoft as ever."