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by Lonnie Adams, Director of Capital Markets
Both bond and equity markets are flat this morning, just waiting to hear what the Fed prognosticators have to tell us. The Fed announcement will occur around 11:15, AM, Pacific time; however, between now and then the U.S. Treasury will auction $40 billion of 5 year notes. While the Fed is expected to state economic prospects have brightened, the Fed will also tell the markets they remain committed to providing a helping hand to ensure a lasting recovery. Regardless of your politics, one thing that will definitely hamper any economic recovery is the expiration of the Bush tax cuts---set to expire in 2010. The current administration and Congress have already made it clear they will not extend these cuts. So, when you think only the wealthy will experience a tax increase next year, lets review what will be happening to tax rates. The 10% bracket will increase back to 15%...a tax burden hike of 50%! The 25% bracket will increase back to 28%...a tax burden hike of 12%. The 28% bracket will increase back to 31%...a tax burden hike of 10.7%. The 33% bracket will increase back to 36%...a tax burden hike of 9.1%. The 35% bracket will increase back to 39.6%...a tax burden hike of 13.1%. Keep in mind this does not include any tax increases required to pay for the new healthcare program. It is hard to imagine an economic recovery if we all have less in our paychecks.