Death & Taxes
It is said that the only thing that is certain in life is death and taxes. There is a hilarious video of a young man opening an envelope containing his first paycheck. You can view it on Twitter here. His moment of elation swiftly changed to disappointment and anger as he saw the amount taken out in taxes. His lesson in the certainty of taxes was widely viewed by millions. Many of the viewers had the same feeling at one time.
The founding of this nation was propelled by wide displeasure with taxes levied by the mother country. Along with the lack of actual representation in the British Parliament, the imposition of various taxes led to revolution. Benjamin Franklin, one of the founding fathers, wrote “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
Taxes, of course, are a necessary means to funding a functioning government. While government waste and bureaucracy are easy targets for criticism, it cannot be disputed that society is impossible without it. Most reasonable people agree that some amount of taxation is necessary. That discussion is often politicized when either party attempts to make changes without bi-partisan support.
The certainty of taxes was driven home by the latest administration proposal unveiled recently by President Biden. The $1.8 trillion America Families Plan includes revocation of tax cuts put in place under President Trump. The plan also is calling for the elimination of the step-up in cost basis for inherited assets. It is a unique way to bring death and taxes together. It also will face strong opposition in Congress.
Every new administration tries to make its mark with bold ideas and programs. The concern in the current situation is that it may be too much and too often. Along with the above program, the administration has already unveiled a $2.3 trillion American Jobs Plan and $1.9 trillion American Rescue Plan. That is over $6 trillion in new government spending.
We have written previously about inflationary concerns. This amount of spending can certainly the inflation fires. In fact, Larry Summers, former U.S. Treasury Secretary and head of Harvard University, has criticized these spending programs as irresponsible.
A recent Wall Street Journal article argues that there is a changing of the guard among economists. Advocates of Modern Monetary Theory have gained more influence. This theory argues for virtually unlimited government spending as it has the ultimate printing press. It remains to be seen whether this theory can withstand testing in the marketplace of the world.
The pre-Covid economy was a robust one. As we make our way out of the pandemic, pent up demand may result in overheating the economy to a degree that is not anticipated. Government spending can be a good thing in times of distress. Some economists argue that we are not in that situation. If it pushes the markets into an inflationary mode, it will be difficult to tame.
Many companies are reporting record profits and the equity markets have responded with sky high valuations. Pouring gas on already lit fire does not douse the flames. We are in danger of overheating if Congress cannot withstand cutting some of these risky spending proposals.
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