Let’s Talk About Taxes

Tax increases have been in the news lately, and an update to the Federal tax code seemed possible just a few weeks ago.  But somehow we’ve made it through most of 2021 without any new legislation being passed.  That seems to be because there was a massive spending increase attached to the proposed tax increase, and that got a lot of pushback among parts of the electorate.  It may also have been because there were numerous technical blunders on the taxation side of the proposed bill that would punish more than 10% of Americans in avoidable ways, and might have even decreased long-term tax revenues.  The public didn’t hear about that so much, but there was a lot of talk behind the scenes.

As a quick reminder, since before this year even started we’ve been focusing on five key themes for 2021.  These themes are being driven by the current state of our economy, as well as the Federal government’s monetary and fiscal posture.  These themes are:

  • Fixed Income (in the public markets) will suffer from inflation and low yields
  • The Stock Market will go up
  • Extreme Volatility could erupt at any time
  • Tax Rates will go up
  • Private Market Investments can benefit your portfolio

We predict that the current tax regime won’t last much longer, due to the current political mix of power.  But, tax rates must go up if we have any hope of averting a fiscal disaster at some point.  And spending must come down also.  If taxes go up and spending comes down, all in the hopes of closing an ever-widening Federal budget deficit, then that will have a contractionary impact on the rate of economic growth.  Few politicians seem eager to embrace that reality in a way that addresses both the tax and spending sides of fiscal policy.

You may ask yourself, how did we get here?  We’re in a situation that seems utterly avoidable, and one that was avoided by most state and local governments.  The answer probably isn’t what you are thinking—it really has to do with the concept of Risk.  Tax policy is all about risk, at the household level and at the societal level.  This came into clearer focus with the Federal government’s response to the tech stock bust a couple of decades ago, and again in the Great Recession when we all learned the term “too big to fail.”  The way American society views risk, who should assume risk, and who should pay to avoid risk, is at the heart of the policy battles taking place across the country.

In this Quarterly Market Report, we talk more about your taxes and how the tax code is linked to the concept of risk.  We also explore how we think you should prepare for possible changes to the tax code to maximize your wealth.

Disclosure: This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors.