It's Time for Another Change in the Tax Code

Dynegy, Nortel, Lucent, AMR, JDS Uniphase, Ericsson and Allegiance Telecom. These single-digit stocks provided a plurality of the questions about equities at the conference I attended in Dallas this weekend.

When people take you aside and ask what they should do --when they question you at the podium and behind the podium -- these are the equities they focus on.

There are two takeaways I have about this. One is that it's a bad sign for stocks when they get this low and people hold on longer than they should. Nobody had just bought these stocks; they'd been owned all the way down.

The second is that we ought to change the $3,000 annual limit to long-term capital losses because that could mean a fresh start for many investors who are holding on for no good reason.

Don't get me wrong: I own JDS Uniphase and Nortel in my Action Alerts PLUS account. I bought them as part of a field bet that stocks had dropped to levels that were absurd. But I don't regard either of those as potentially big stocks. If Nortel gets to $5, it will be huge; if JDS Uniphase tops $4, that would be terrific. I would probably exit both. That's all I need.

That's not what the people at the Dallas Conference need, though. They want to get back to even. It's not going to happen.

If there were more of an incentive in the tax code to take these losses, they could then return to more serious investing and less "hope" investing.

I know I was pushing endlessly for a dividend tax break to get people to do the right thing, both at the corporate and the individual level, but I think it must be joined by a change in the anachronistic loss limit.

It's not letting people get the fresh start, a fresh start that is a necessity if we are going to get these markets moving again in the long term.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long Nortel and JDS Uniphase. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."