Seeking increased revenue appears to be a chronic preoccupation among our elected officials.  However, with December 31, 2025 expiration of major pieces of former President Trump’s 2017 tax law, we can expect increases in commentary and new heights of obfuscation.  While it is impossible to handicap the eventual outcome, investors should prepare for some targeted tax increases and a further increase in the national debt.  Remember, inflation is a regressive, hidden tax.

In thinking about potential tax policy, it might be helpful to consider that revenue sources tend to fall in three categories, income taxes, consumption taxes and taxes on assets and asset transfers.

Income taxes:  Taxes on income generally start with form 1040 and its state and local cousins.  Typically, income taxes tend to be progressive, although legislators are restrained by a reluctance tax themselves or their major campaign contributors.

Consumption taxes:  These include sales taxes, and value added taxes (VATs), which are widely used in most developed countries, and are very regressive. VATs generate an enormous amount of revenue and are tantamount to a government-controlled ATM.  It should be noted that taxes on companies, which are usually passed on through higher prices, are also, in effect, a regressive consumption tax.  See our blog from April 17, 2024 “Hey Washington! Corporations Don’t Pay Taxes. Their Customers Do.”

Asset taxes:  These include property taxes, taxes on the sale of transfer of assets, estate taxes, and a wide range of other taxes related to the ownership and/or use of assets.  Typically, these taxes, particularly property taxes, tend to be regressive.  While not everyone is as underhoused as Warren Buffett, housing is a more important asset for lower income families.

Investors would be well advised to consider, perhaps with the help of their advisor(s), how differing taxes might affect their financial situation.

All comments and suggestions are welcome.

Walter J. Kirchberger CFA