It is generally accepted that the U.S. economy is largely consumer driven. It is also probably true that most Americans spend virtually all of their income. Therefore, anything that reduces consumers’ disposable income may expose the U.S. economy to additional risks.
With that in mind, investors could benefit by giving some consideration to the nature of U.S. tax policies across the full spectrum of jurisdictions, including federal, state, and local. A careful analysis of the plethora of taxes and fees levied across the country, suggests that, except for income taxes, most other taxes are essentially consumption taxes. It is important to recognize that taxes and fees levied against the providers of goods and services tend to be passed through to the customer. That is, any tax levied directly or indirectly, as the result of the purchase of a good or service, reduces net demand. Consumption related taxes are basically regressive, taking a greater percentage toll on lower income citizens.
Incidentally, tariffs, regardless of which side levies them, tend to be regressive and reduce consumers’ net purchasing power.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA