Changes in the political arena are like changes in direction of the wind. One day it's out of West the next the East. So it goes with tax policy. I've written elsewhere that taxes are used to encourage favored behavior and/or discourage unfavored behavior. So, in its simplest explanation, taxation is a behavior control. When you want more of something you tax it less or not at all. Conversely, when you don't want more of something you tax it more. This basic reward vs punishment system is the common scheme for most tax agencies worldwide. The US Tax Code gets a bit more complicated from there.
You may have heard the term carve out. In relation to taxation it is a provision in the law allowing some sector and its special interest to escape taxation. You might be surprised to learn of names that received carve outs. This special treatment can be political and serves to prove that it is indeed who you know that counts. OR who you hire to lobby on your behalf. Special interests can be big businesses, multi-nationals, arts groups, unions and others. All alike seek some special rule or exclusion to avoid taxation. This happened in a sizable way in the last big tax act under Trump passed in 2017. Trump wanted more of something so he taxed it less. What he wanted more comes down down increased Capital invested in the USA thus creating more jobs and putting upward pressure on wages. I believe it was well intentioned toward helping the lower and middle class improve their lot. Indeed it did so. Unemployment went down, wages went up and this was helping otherwise forgotten communities too so it has been very popular. But the price paid is deficit spending because lower taxes equals less tax revenue and without spending cuts the National Debt goes up. As I write the US National Debt is approaching $30 Trillion. Interest rates remain low so paying the debt service is possible at present but when interest must rise as they will in serious inflationary responses this debt will be unsustainable and the Federal Reserve will come in once again and print more money out of thin air and worsen inflation not better it. So now it's death, taxes and the printing press...the 3 things you can't avoid in life.
Since our national wind direction changes every 4 years or so in elections, we get an ebb and flow of various approaches. But the ones that make it into actual laws rarely get removed. Altered perhaps, but in general, once a law is passed it stays in place. Notable exceptions were when Congress rescinded the prohibition on Alcohol or when the Supreme Court who seems to write laws without help from Congress ruled on Abortion. So if the tax cuts are to ever change new laws will have to supersede old and the wind once again changes direction. The current administration is proposing several tax changes so I expect taxes will rise. I do not expect spending will in any be curtailed and we will continue the debt death spiral all along aided by the fed printing press. It is a terrible situation.
At one time, there was a popular notion of a Constitutional Amendment being passed that would require a Balanced Budget. It is no longer popular but needed more than ever. I am not optimistic about the continuation of this perverse system for much longer. The World Reserve Currency status enjoyed by the USA will someday wane and the financing of our trade deficits end...this will bring a collapse of the US Dollar and perhaps we will have hyper inflationary times. That does not bode well for the relatively high lifestyle in the USA. Some politicians have wanted us to be more on par with third world countries and I'm afraid they will get their wish. In that case, no one wins except China. They will become the largest economy and biggest influence among Nations and maybe the Yuan will become the new Reserve Currency. That will take some getting used to but it will be a big wind even a Hurricane of political and social change.
Stay aware of events that have big influence over the USD and you'll have a little warning and with luck time to take some precautions. I currently buy Gold and Silver and try to invest in non-USD denominated ways. This isn't un patriotic it is survival pure and simple. There are even a few good Euro/Asian Mutual Funds that can accomplish that. If I am proven wrong, that will be a good thing. If am right we're in for blow.
Best to You All.
Donn Marier
DM-Your Own CFO