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I can’t believe every news show and talk show and financial reporter
in
America is not knocking down Jude Wanniski’s door.

After all, everybody’s still scratching his head trying to figure out
why
the bottom dropped out of the markets — especially the NASDAQ — last
week.

There are all kinds of theories. But none of them explain why the
markets
bounced back — or at least stabilized — so inexplicably this week.

Except Wanniski’s.

You see, Wanniski, a /news/archives.asp?ARCHIVE_ID=17WorldNetDaily columnist

and adviser and author of the seminal work, “The Way the World
Works,”
a
classic book that helped inspire the supply-side revolution in the
1980s,
not only predicted big trouble in the markets leading up to April 15, he

also predicted the rebound that followed on April 17.

How? Does he use a Ouija board? Does he read tea leaves? Does he
consult the
psychic hotline? No. He uses his head. It’s his business. And his
theory,
now tested, makes perfect sense. It also illustrates that shortsighted
government greed, once again, was the culprit in engineering the latest
market debacle.

Wanniski predicted the plunge weeks ago saying huge
capital
gains in 1999 precipitated tax-time share sales to pay the tax bills due
on
April 15.

“The NASDAQ sell-off has me thinking of a connection to April 15 and
the
fact that there is no withholding on capital gains,” Wanniski warned
last
month. “There was a sell-off last year too, remember, with a bounce back

after April 15 and a flat market for some months thereafter. In other
words, people who took capgains before December 31 now find they owe
Uncle
Sam and must sell equities for that purpose.”

Technology companies, more than any others, experienced unprecedented
growth
last year, pushing the Dow Jones average over the 10,000 mark and the
technology-heavy NASDAQ to 5,000. The growth has been attributed to
fledgling “dot com” companies whose values have skyrocketed, thanks to
the
dizzying expansion of e-commerce.

“It struck me in late March that much of the reason for the weakness
in
NASDAQ stocks was due to increased tax selling by individual investors
who
made lots of money by the dot com advances in 1999 … and who held on
to
gains instead of selling early to provide cash for IRS,”
he told
WorldNetDaily.

Capital gains are taxed at different rates, depending on whether they
are
considered short term or long term. The profit from the sale of an
asset held less than one year is a “short term” capital gain and is
taxed at
the same rate as ordinary income. A “long term” capital gain,
however, is the profit from the sale of an asset held for more than one
year. Long term capital gains are given preferential tax treatment,
reducing
tax liability. The former associate editor of the “Wall Street
Journal” says that if tax laws were changed so that “long term” was
redefined
as a period of three months, rather than 12, the sell-off may not have
happened at all.

An even better solution would be to eliminate the capital gains taxes

altogether.

And let this serve as a warning to all those politicians still
foaming at
the mouth to tax Internet commerce. As I have said over and over, this
new
industry is still in the nursery — maybe even the incubator. This is no
time
to consider bleeding it dry.

Of course, there’s also no doubt in my mind that part of the
psychology
behind last week’s big market sell-off was the U.S. government’s attack
on
Microsoft. Who can have any confidence about a business — especially a
speculative start-up — when the biggest and most successful enterprise
in
the world is subject to such assaults by the Justice Department?

Bill Gates apparently thought he had reached the point of
invulnerability
with regard to competition. But he forgot about the ultimate competitor:

government. And that’s what the Justice Department case is all about
when
you get right down to it. This is about government throwing its weight
around, demonstrating that it is still the biggest, meanest, most
ruthless
kid on the block.

But I like Wanniski’s theory. It not only explains the wild ride on
Wall
Street last week. It even explains the precise timing. And, if
government
will only stay off our backs, it signals good news for the economy and
tech
stocks for the future.

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