Strothman News

The Wealth Tax ‐ Part 4: Implications

Dustin Wells, Tax Manager

Now that we have a better understanding of the wealth tax and its general implications on the American wallet, the “wealth” it will be levied against, and how the wealth tax projects will be applied initially – let’s advance with a simplified but more detailed analyzing of the consequential implications of (a) wealth tax on Americans systematically step-by-step.

First, let me asterisk the following analysis by saying this – given more recent research and study, there is one step the federal government under new presidential leadership would pursue foremost before a wealth tax would be implemented on certain Americans who earn over and above a certain dollar figure. Can you figure out what it is? Any guesses? No? Let’s explore…

How do you make a budget go negative? How does your monthly budget go “into the red” at months-end? The same way the federal government’s proverbial “budget” goes into the red as it has for years – spending! And this is the key step to enabling and passing a wealth tax in my humble opinion. Before any wealth tax passing, you will see federal spending explode and ultimately be unmitigated which would then nudge new leadership towards passing a wealth tax.

To be completely fair this may never happen – and I pray it doesn’t – if continued leadership is maintained in the centralized part of the District of Columbia; however, as a conduit to our clients, I feel obligated to provide this information and potential scenarios for your benefit so you can better plan ahead in respect to your businesses and more importantly your families.

Now that we have the basis of understanding that spending reciprocated by the dire need for more and more and more… tax revenues – will ultimately initiate the proposals and eventual passing of a wealth tax, let’s move forward with the likely implications in parts.

Firstly, in my estimation, the most impactful implications of a wealth tax as to where everyday working-class Americans will feel substantial effects in two main areas of the economy – at the grocery store and in the U.S. investment markets. Ultimately, like all other taxes, if a wealth tax is imposed, businesses – local stores, shops, and more importantly locally owned business – will attempt to make up for the surrendering of their accumulated capital and savings by passing on the financial consequences of a wealth tax on to customers. You think small businesses are going out of business quickly now due to Coronavirus and centralized property damage in certain American cities, just wait until these already struggling businesses have to pay more tax into the federal apparatus!

In effect, at the person level, what if your grocery bill goes up from $100 to $200 or $300? What happens when food costs double or even triple if when inflation hits? What happens to your family’s budget when the utility or gas bill goes up from $50 to $100 or even $150 per month? What if your $1 is no longer worth $1 but it’s only worth $.50. What do you do then? How do you make more money to combat un-conquering inflation? Answer: you likely don’t.

Ok, enough direness. What happens when you run out of other peoples’ money? Maybe an easier question is – Who is John Galt? Ultimately, if the U.S. dollar is worth half its purchasing value then that means us – the American people – no longer have strong purchasing power, and may only be able to purchase half or God forbid even less than half of what we do at the grocery. But over-achingly, in effect, the more we are taxed the less free we are to pursue happiness!

Moreover, in regards to the U.S. markets, American businesses and corporations are not going sit by and pay more and more… and more in taxes while some larger U.S. corporations can move profits overseas and pay more favorable tax rates and even hire more cost-effectively. That’s what I would do! And guess what? That’s exactly what U.S. businesses and corporations did between 2012 – 2016 because of similar deemed penalizing tax rates maintained.

Therefore, in part, U.S. businesses and corporations who can afford to do so will ultimately move their earnings and derived capital to the proverbial financial sidelines of the U.S. markets by moving those monies (and jobs) to the more favorable tax rate arena’s. Ergo when that happens at a larger scale, the DOW and NASDAQ will be diminished significantly and will ultimately lose more in value than would’ve been lost by simply raising tax rates back to the Obama levels due to American’s wealth effectively being double-taxed. I think the U.S. Constitution says something about that… no taxation without representation? Sound familiar?

In any form, if a wealth tax is passed and attempted to be implemented on Americans it’s a guarantee that lawsuits and court challenges would follow with the case(s) ultimately adjudicated by the U.S. Supreme Court.

Secondly, another significant consequence would be an almost immediate decrease in the stock market and related individual investment accounts. Have an IRA worth $500,000? Not anymore! Ref. Part 1.

Furthermore, what happens to that investment account when the base value of that investment tied to those same indexes via stocks, bonds, and their mutual funds goes down by a third or half due to decreases in the stock market as a reaction to a wealth tax proposed by the House, passed by Congress and signed into law by the President? Guess what? Sadly, you will no longer have that $500,000 in your IRA. Instead, you’ll likely only have $250,000 or even worse… less due to the double-knockout-punch of a decrease in the market and the inevitable taxes you will have to pay on that “wealth” thanks to the shiny new wealth tax!

In my mind, it’s simple – if either party restores or raises the Obama tax rates then American business owners will swiftly and legally move their money out of US markets to the proverbial US market sidelines and into the foreign markets and other countries with lower, more favorable tax rates – just like they did during President’s Obama administration. As the market goes, so do our investments!

Beyond this and possibly even more damaging to all our lives and investments specifically, there are also ongoing COVID issues with limited capacities and a plethora of local businesses closing even after receiving government-directed PPA loans. On top of that, more locally related to Louisville, Kentucky, we still have businesses boarded up due to damage from rioters and protests with very few business and commercial offices including PNC Bank and Humana not re-opening their downtown offices or even allowing employees to come back full-time if they choose to do so until 2021.

If that’s not already enough to add into the pressure cooker, if you will, Louisville also has more potential fallout from a police shooting and killing of a local young-woman after the announcement by the Grand Jury and the Attorney General Mr. Daniel Cameron. Not only do I pray for my country and church, but I pray for this city as well. It’s our city. Louisville can be so much more! It’s a lovely city. I love this city! I pray for you as well because I know as business owners with families and children and grandchildren your burdens are heavier than I can ever fathom.

Ok – so, now what, Dustin? You tell me! What’s the solution? Is there a solution to all of this? Where do we go from here? What can I do for my business and more importantly my family? Personally, I have some ideas but within the big picture, all I have for you are merely general suggestions.

First, pray. If you don’t pray or believe in prayer – ok, I understand.

Secondly, vote! Every American, especially every American business owner and employee, staffer, etc. should register to vote and vote!

Third, plan. Take time to plan out your personal and business finances. In the long-term, it’s worth it. Figure out how much money you will need to sustain operations for the rest of 2020 and even 2021 so that if anything happens economically or God forbid more and more taxes are levied as we’ve discussed, you are ahead of the game by already having a plan that you can adjust and you don’t have start from scratch.

Lastly, if you’ve taken your valuable time to read these articles and have more questions or just want to talk it out, then I am more than happy to answer any questions you have and am willing to discuss anything related to these issues. The coffee is on me!

Two strands are stronger than one and three strands are stronger than two. In all of this, I believe every American of any and all political persuasions should stand up for their country and vote for what they want America to look like for them, especially at the local and county levels. We’ve seen how important local leadership is more than ever before these past 5-6 years in Bardstown and Louisville. May God continue to bless the United States of America and your families. We need Him now more than ever.

#drw