Postcards: The Fiscal Oppression of Time and Capital

There's a new capital gains tax proposal floating around... let's challenge this narrative for the 88th time. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: The Fiscal Oppression of Time and Capital]( There's a new capital gains tax proposal floating around... let's challenge this narrative for the 88th time. [Garrett {NAME}]( Apr 24   [READ IN APP](   Market Update: Another day of deviation bands, price swings, and the S&P 500 slumping below its 50-day and 20-day moving averages. The longer this weakness goes, the more dangerous things become on the back of the month with the PCE Inflation numbers and the refocus on the Fed’s interest rate chatter. Keep a close eye on the MACD for the S&P 500 SPDR ETF (SPY). A positive bump would attract some capital… but the Russell 2000 is still deeply under pressure. Bad day in the small-cap space, especially for names like Wayfair (W) and XPO Logistics (XPO), which are breaking much lower. Dear Fellow Expat: One of the most dishonest debates in modern U.S. politics centers on “record profits” for oil producers. Not only did anti-oil politicians leave many energy players to die during the onset of COVID-19, but they also grossly omit the almost comical winners when it comes to U.S. gasoline consumption. The average gas station makes seven cents per gallon in the margin. Gas stations earn most of their money on the products inside their convenience stores. The U.S. government makes more than “double in profit” off the gas stations selling fuel in cars - all without having to do any work. The Federal gasoline tax is 18.4 cents per gallon (24.4 cents for diesel, the fuel that powers our supply chain). Now… it’s especially rich when politicians in California and Pennsylvania complain about gas stations gouging customers. California’s gasoline tax is 54 cents per gallon. Pennsylvania is 61 cents. So… who really gets paid? Who's the real culprit in gouging consumers? It’s not the guy who owns four 7-11 stores leasing the Chevron name for his stations. It’s the politician. Three Cheers for “A Fair Share.” There are really three taxes in America. Income taxes. Capital gains taxes. And inflation (the government devaluing the currency to reduce its debt burden.) The adage goes that Warren Buffett pays less than his secretary on taxes. This is because he pays capital gains, incentivizing investors to leave their money in a business and invest for more than 12 months. If they sell their investment before 12 months, it becomes short-term capital gains that pay out at regular income levels. Over 12 months, well, it’s much lower. The Top 10 percent of Americans pay more than 60% of all taxes, and about 76% of income taxes. But the [2025 budget proposal]( calls for something even higher than most income taxes in today’s system: “Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent.” Now, a move up in capital gains might make sense… unless you wonder why we’d want our capital gains taxes to be higher than those of China, our chief economic rival that desperately wants to attract foreign investment capital. The lone case for raising capital gains taxes is that the Federal Reserve has been engaging in inflation targeting for decades - artificially propping up equity asset prices at the expense of the average person. But that’s more of an argument for the Federal Reserve to stop engaging in alchemy and stabilize prices over the long term. But now there’s a new argument: Let’s make the wealthiest investors pay their “fair share” by jacking up the top capital gains tax to… 44.6% through the Expand Net Investment Income Tax (NIIT). That would put the U.S. capital gains levels (highest bracket) above Denmark, Norway, Finland, and France. (Switzerland and Singapore have no capital gains taxes and very high economic freedom rankings, so, unsurprisingly, they attract capital from all over the globe.) Now… I could sit here and describe how you tax it more if you want less of something. And that’s what will probably happen. (Their projections are largely static tax assumptions that have no basis in reality. Few of these projections ever reach their lofty expectations.) Or I could start by saying that most of the people these taxes will target will still avoid paying them. For reference, consider the arcane tax laws that allow wealthy people to hide money in sports teams and take depreciation off their players—which is just insane. Or how the second you go above a threshold, the revenue maximization declines. This is the basis of the Laffer Curve. But I want to focus on one rule of economics. If you combine the highest capital gains taxes with the highest state taxes, some investors could pay a tax rate of around 60%. California will face a combined federal-state rate of 59%, New Jersey 55.3%, Oregon 54.5%, Minnesota 54.4%, and New York 53.4%. (Maryland is also pushing to raise taxes, not lower them.) Who benefits when the bulk of the investment capital or the financial windfall goes to a stakeholder demanding three out of every five dollars in taxes? By default, the government is the largest shareholder in the investor's life - and their balance sheet. It is financial oppression - and even more insane - those gains aren’t attached to inflation. The Fed has a monopoly on the Dollar (the currency) and a duopoly with Congress on inflation, and now Congress would engage in a different level of intrusion. When someone or a combined party takes more than 50% of your money… and thus the product of more than 50% of your time and energy… you aren’t free. You aren’t sovereign. You’re shackled… a ward of the state. How people don’t understand this is beyond logical. I’d prefer to have more of a say in this economic calamity. Maybe They Should Focus on How We Got Here? One of the other incredible things about this massive tax plan is that they want to expand the 1993 tax proposal that largely got us into this place - with a small group of people owning the bulk of the assets and thus paying a huge stake in taxes. Back in 1993, [a tax provision was passed to stop public companies]( taking write-offs on executive compensation over $1 million. As a result, companies started paying their employees in stock and options, fueling an explosion in the difference between the average employee’s compensation and the CEO's. The new 2025 proposal would expand this to reduce further compensation write-offs at the $1 million threshold. Can you guess what will happen? Companies will be further incentivized to pay in stock and options, but due to changes in the tax code, stock prices could erode if employees aren’t incentivized to hold them for longer. Tack on inflation targeting, runaway debt, massive deficits, and really dumb static projections and revenue assumptions (instead of dynamic projections) for tax revenue - and you have a proposal so flawed - and so Byzantine that the price of getting your taxes done - and the threat linked to compliance challenges - are going UP. Term limits… please! Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()