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Disincentives

Sigma Investment Counselors

May 14, 2021

Much has been said about an apparent mismatch between unemployment data and the forest of help wanted signs around every corner.  While there are a number of possible explanations, many have suggested that overly generous, no questions asked, unemployment benefits may be, at least, part of the problem.

While most of the stimulus disbursements have been directed to the bottom half of the economic ladder, we are now looking at a proposal that might provide the highest earners with an incentive to curtail their efforts.  Higher marginal tax rates.

It should be obvious that higher marginal tax rates reduce the net cost of taking an afternoon off, perhaps to play golf, or deciding to take an additional long weekend, or even a more extensive vacation.  In some states, marginal income tax rates are already in the 50% range.

All of this matters.  If an individual is not working, or working less, and is not producing a product or providing a service, they are not contributing to GDP.  Eventually, that is likely to make it difficult to sustain economic growth.  Investors take note.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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