The Democrat tax strategy that will tighten the noose around the middle class's neck
Current Treasury secretary Janet Yellen laid a colossal rotten egg when she floated the trial balloon of imposing a tax on unrealized capital gains. Not only would the gain be subject to possibly losing some of its value after the tax is collected, but the taxpayer still hasn't collected the actual proceeds usually necessary for paying the tax.
The bad news is that this really bad idea is still slithering around the fetid catacombs of D.C. The lipstick being put on this pig is the tried-and-true exploitation of envy and resentment for the rich. The late, great Walter E. Williams often opined that he wished there was some humane way to just plain get rid of the rich...so we could finally have an honest discussion about tax policy. It so happens that we are already in the throes of the severe consequences coming from years of punishing success and rewarding failure.
That such an evil idea would emanate and continue to be pursued is rather disturbing. Another problem is the overwhelming lack of economic and financial sophistication of the usual media. When Mr. Trump's 1995 tax return was illegally leaked to the press, a writer for the Associated Press stated that Trump wrote off (oy, vey!) depreciation on his income properties. The writer stated that only billionaires get to do such things. Actually, there are literally millions of Mom-and-Pop landlords in the U.S. who do exactly the same thing.
Before Mr. Trump was unceremoniously escorted out of office, he suggested indexing the tax on capital gains to inflation. After all, a significant portion of the bump up in price between buying and selling an asset is the result of the continuous devaluation of money. The rest is the actual increase in value...typically from increases in demand or decreases in supply.
Bottom line: Inflation is a poison pill in the upcoming midterm election. The politically opportunistic antidote is, as usual, the increased screwing of the taxpayers. After all, they can be expected to be fairly docile in their cooperation. Seems like a good path to pursue in paying off one's political supporters. (William Hogarth, who may be considered the father of illustrated political satire, is best known for his painting "Canvassing for Votes," which shows two rival campaigners...both bribing a citizen.)
The twisted logic behind the push to increase taxes as a remedy for inflation relies on reducing the deficit. After all, it supposedly does not add to the increase in the money supply. We fiscal conservatives, however, focus on spending. Not only is spending excessive, but it's fairly non-productive, except when it comes to getting the votes of targeted constituencies. Can you say "student loan forgiveness"? Absent from the calculation is that having government suck more wealth out of the public milieu further pushes us toward recession.
Taxing capital gains also has subliminal consequences, particularly when it comes to real estate. Elderly long-term landlords face an enormous tax burden after years of inflation and appreciation. Some just let the property decay while expecting their heirs to get the adjustment in the tax basis when they inherit, and they can then sell while paying little if any tax. This is also known as allowing blight to fester.
Now we're starting to hear forecasts of recession. Paul Volcker stepped in back around 1981 and deliberately triggered a recession, while simultaneously putting the brakes on inflation because Gerald Ford's "Whip Inflation Now" lapel button didn't seem to work.
There's a pretty good joke about economists: "this guy is such a great economist that he's predicted twelve of the last three recessions."
Image via Pixabay.