Taxes: Rates Versus Revenues
The need to raise taxes is definitely front and center in the news, driven by the administration’s unprecedented pursuit of unfunded spending. This has led to an increase in the concept of “fair share”, a concept that defies definition.
Perhaps it would be constructive to examine the whole idea of taxation. One might think that a rational tax policy would seek to find a balance between tax rates and revenues with the goal of maximizing revenues at the lowest practical percentage rates, while avoiding rates that exceed the point of diminishing returns.
The U.S. tax system depends to a large extent on the concept of voluntary filing. This suggests that the most important definition of “fair share” should be based on the acceptance of the taxed, rather than the goals of the taxers. Our elected representatives might want to recall a phrase in the Declaration of Independence, “consent of the governed”.
To that end, it might not be appropriate to use the tax code to penalize the “undeserving” while rewarding friends, constituents and providers of favored products and services.
Investors should be aware, watch and wait. Currently there is a lot of talk, but the time for portfolio decisions is when the final legislation is in place.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®