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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.


October 2020: The Forever Growing Debt Bomb

September 2020: Are We Out of the Woods?

August 2020: COVID-19's Potential Impact to Deficits

July 2020: Random Musings in Our Random New World

June 2020: Does Anything About This Feel Normal To You?

May 2020: Can the Rebound Last?

April 2020: The Big Bear of Q1 2020

March 2020:  Where's the Bottom?

March 2020: A Perspective on Crises

March 2020: Is there Any Good News Out There?

February 2020: Is Diversification Dead?

January 2020: The Roaring (or Boring?) 20's Are Here!

December 2019: Providing 'Alpha,' The Holy Grail of Investing

November 2019: The Search for Yield: Chapter 2

October 2019: Given the Current Rate Environment, How Has the Search for Yield Changed?

September 2019: What is the State of your State?

August 2019: Volatility is back, but is it the end of the world?

July 2019: Is This the Year 2000 All Over Again?

June 2019: Concerns of an Economic Slowdown?

May 2019: Benefits of Hedge Fund Investing

April 2019: Yet Another Burden On The US Economy

March 2019: Capitalism vs. Socialism: The Debate is Alive and Well

February 2019: What Are the Most Important Factors for Investing in a 401k Plan?

January 2019: A Look Back and a Look Ahead

December 2018: The Inverted Yield Curve - In Layman's Terms

November 2018: A False Sense of Security

October 2018: Reflections From Over Four Decades

September 2018: A Decade of Assisted Recovery

August 2018: The Entitlements Train Wreck - Possible Solutions?

July 2018: Is Wage Growth In This Country Improving Over Time?

June 2018: The Impact of Corporate Tax Reform

May 2018: Kentucky Derby Talks - Bulls vs. Bears

April 2018: How Much Longer Can Interest Rates Stay So Low?

March 2018: Policies For Economic Growth

February 2018: Volatility

January 2018: So What's In Store For 2018?

December 2017: Tax Cuts and Jobs Act: Good or Bad for Me? It Depends.

November 2017: Whack-A-Mole - D.C. Style

October 2017: Should You Consider a Robo-Advisor?

September 2017: Alternative Investments - What and Why?

August 2017: The QT Quandary

July 2017: Quality of Life Influencers (Cont'd)

June 2017: Quality of Life Influencers

May 2017: Repatriation Myths and Realities

April 2017: Time to Invest in International Equities?  Let's Take a Look...

March 2017: Valuation - A History Lesson

February 2017: The Prince of Darkness

January 2017: Mountains of Debt - Does it Matter Anymore?

December 2016: Trumponomics: Reagonomics' Twin?

November 2016: Found Money

October 2016: Marrying Theory and Practice

September 2016: Do You Have a Sharpe Portfolio?

August 2016: Be Careful of High Dividend Stock Strategies

July 2016: "Die Younger" is Not a Strategy

June 2016: Blame Tina

May 2016: Would You Rather:  Tax Cut or Tax Increase?

April 2016: Father Time Demands Your Attention

March 2016: What Has the Last Year Taught Us?

February 2016: Winners and Losers of the Oil Battle

January 2016: Diversification Improves Returns and Lowers Risk