This Month’s Newsletter
Federal Tax Revenues and the Debt Bomb Join our Monthly Newsletter November 2020
Junius V. Beaver, III
Co-CIO, Principal
Over the last several years, we have written numerous newsletters regarding the fiscal position of our country. They are all available on our Lanier website. In August of 2018, we wrote of The High Cost of Good Intentions that vividly details that our problems are driven by both demographics and politics. In March of 2019, we wrote about the differences between Socialism and Capitalism, and encouraged readers to educate themselves on the beliefs and examples in history of each. In September of 2019, we wrote about how so many people are “voting with their feet,” as people from high income tax states (NY, CA) are exiting in masses to states with low or no income taxes (FL, TN, NH).
Last month, my partner Carl wrote about the unsustainable path of the USA and our path to a $50 trillion debt bomb possibly in this decade. The figures do not lie that we have a severe addiction to overspending. And it looks to get worse driven by both politics and demographics. We promised to comment on the income side of the government debt bomb which is solely tax revenues and tax increases.
These are four sources of federal tax revenue:
The problem is spending versus income as measured as percent of GDP. For over 50 years, we had revenue at 18% and spending at 20% – which was okay as long as GDP grew 2%+. It is simply larger government in our lives. The spending percentages are now much higher and expected to increase. Thus, more revenue is needed.
The major sources of revenue are all scheduled to increase under a new administration if they can be approved by the Senate. The Biden/Sanders Unity Task Force presented their new tax plan, and highlights include:
The $4 trillion in tax increases are further adjusted down by tax decreases for renters and childcare and increased marginally by a humongously large upward revision to estate taxes. Federal revenue over the last five years pre-COVID averaged ~$3.3 trillion. Adding $400 billion each year ($4 trillion ÷ 10 years) in tax revenue is an approximate 12% raise. I wish it would pay down debt, but I’ll bet you a buck it will not.
The war on the wealthy is official – when you are alive and when you are dead!
Each area could be a newsletter in itself. For example, if a couple sells their low cost basis investment (like the business they built over the last 20+ years) and each work and together they make $400k, it is very possible they could pay 65% of their hard-earned profits made over decades or even generations to their friends – the federal and state governments. And then pay steep estate taxes on what’s left. So not a lot would be left. Sad.
The federal tax revenue increases Americans are facing are potential game changers to American behaviors. We love discussing the associated items of required rates of return of various investments pre-tax, the Laffer Curve and incentives, progressive tax rates, who pays the taxes, estate taxes and more. Please give any of us a call if we can help you in any fashion. Thanks for following us!
Junius V. (Trip) Beaver III, is a co-founder of Lanier Asset Management and serves as its Co-Chief Investment Officer. Trip has been a financial advisor delivering high-value investment solutions to affluent individuals since 1994. In addition to his work at Lanier, Trip donates his time and investment expertise to charitable organizations such as the Library Foundation and the Metro United Way.