Now that the country is in the final run up to the November elections, it might be a good time for investors to think about some of the competing proposals relating to tax and tariff policy. In that regard, on April 17, 2024 we posted a blog titled, “Hey Washington! Corporations Don’t Pay Income Taxes, Their Customers Do.” Guess what, corporations don’t pay tariffs either. The cost simply goes into the price of the product. As a result, tariffs, like anything else that makes products or services more expensive, are a regressive tax. That is not to say that there aren’t any “good” reasons for imposing tariffs on certain imports, but the impact falls hardest on those that can least afford it.
Income taxes on individuals’ income are another matter that is definitely on the table after November. A significant number of Americans don’t earn enough to be subject to Federal income taxes. Therefore, proposals to reduce income taxes generally only benefit those who are already better off than many Americans.
Investors should consider the potential impact of policies, including taxes and tariffs, that increase the cost of consumption and reduce purchasing power. To quote Adam Smith, “Consumption is the sole end and purpose of all production.” Production leading to consumption is what makes the economy grow. Creating road blocks ends up hurting everyone.
All comments and suggestions are welcome.
Walter J. Kirchberger CFA
