Thoughts On Wealth Taxes

We have been hearing quite a bit lately about the need to tax the wealth of this nation's wealthiest citizens. The cry of the supporters of these taxes is simple: Make the wealthy pay their fair share of taxes. I want to use this space to dispel the big myth, consider some logistical issues and question why we need to raise taxes on the wealthy in the first place.

Supporters for a wealth tax talk a lot about making the rich pay their "fair share." What is their "fair share?" Do they already pay it? According to the Tax Foundation, a nonprofit, nonpartisan research organization founded in 1937, the top 1% of income earners paid approximately 38% of the income tax burden. Data from the National Taxpayers Union Foundation showed nearly identical results. To put some perspective on this, in 1980, with the top marginal rate at 70% (compared to 37% today), the top 1% of income earners paid approximately 19% of the total tax burden. Is the 38% figure today a "fair share?" According to the Tax Foundation, the top 1% of income earners make 20-22% of the total income, while they pay 38% of the total income tax burden. The data shows that the top earners clearly pay their fair share by any reasonable measure.

How will wealth be determined? I will begin this with the basic accounting equation:

Assets = Liabilities + Equity

In this equation, assets are what you have and the liabilities + equity are how those assets are paid for. True net worth is the equity portion of the equation, not the asset portion. Written differently,

Equity = Assets - Liabilities

The supporters of wealth taxes would tax the assets regardless of how they are financed. The assets are not someone's true net worth. 

On what date will net worth be determined? Chances are the valuation date will likely be December 31. What will likely happen in the days and weeks leading up to the valuation date? The people who will be subject to the tax will be incentivized to minimize their net worth so they can minimize their tax. For entrepreneurs who founded their companies and became wealthy on the IPO of the shares, their shares in the stock are their ownership interest in their companies. It is understandable that they do not want to sell their shares. Not only would selling shares result in lesser control of the company they founded, but it would also result in large capital gains which also means capital gains taxes. What the wealth tax will do is incentivize fishy attempts to manipulate stock prices in order to hold down taxes. When the wealthy are ultimately forced to sell shares to pay the wealth tax, who will buy the shares? The shares can be sold in the open market, and the share price will decline, perhaps dramatically, as a result. That is one option. Another is that the wealth taxpayer can sell shares directly to his company. But the company will likely have to borrow millions of dollars just to fund this, which will weaken the company financially.

How do you determine the value of non-liquid, privately held assets? If a person owns a privately held company, you can do a discounted cash flow analysis to determine its value. Simple, right? No. In order to run a simple DCF, you need to determine a discount rate and a growth rate. Both of these numbers are highly subjective. The tax man has an incentive to pick numbers that will yield a high valuation while the business owner will pick numbers that minimize the value. How do you determine cash flow? Is it operating cash flow, is it free cash flow? Just determining value could yield dozens of numbers encompassing a wide range of values. Now how do you determine the value of something like an art collection or a house? These assets do not produce any cash flow and an appraiser's valuation is merely a guess. In other words, the value of these types of assets is a purely made-up number.

Finally, why do we need a wealth tax at all? The data already shows that the wealthy are paying more than their fair share. The bigger question here is why should anyone, regardless of net worth, pay even another nickel to the federal government? We are $40 trillion in debt, and we did not get that way because Congress was a responsible steward of our taxpayer dollars. In a year in which widespread fraud has been exposed in federal and state governments, asking for more tax dollars is insulting and repulsive. How many of these wealth tax proposals have spending reforms built in to ensure that taxpayers get the most bang for their buck? None. Meanwhile, the state of California passed a law this year, nicknamed the "Stop Nick Shirley Act," which makes it a crime to expose the fraudsters! Make it make sense to me! Where are the Inspector Generals in all of this? They are supposed to act as internal auditors for the federal government, yet they clearly did not do their job. And the federal government thinks they can just come and demand more money from us? I want to see efforts to clean up their own house before the federal government comes demanding more money from us.

Ultimately, if the wealth tax is passed it will come for all of us. A history of the income tax serves a guide here. The modern day income tax was started in 1913 with the 16th Amendment. It started out as a 1% tax on incomes above $3,000 up to 7% on incomes over $500,000. Very few Americans were subject to this tax and the rates were seemingly small. By 1943, with the US at war in World War II, automatic withholding was introduced and the number of Americans that were subject to the income tax greatly increased as did the tax rates. Today we are still paying in large numbers and high rates. If a wealth tax passes, I am afraid that the same path will follow, with all of us paying the tax (not just the rich), and that the tax rates will be much higher. I am not saying this path is likely if a wealth tax passes. I am saying it is inevitable. 

Economies grow through wealth creation. A wealth tax is wealth destruction. The government is a horrible allocator of resources. There is a perverse incentive to increase funding to agencies that are failing or performing their mission miserably. In the private sector, underperforming assets are defunded and eliminated. Assets that are allocated horribly are why private companies go out of business and why governments end up $40 trillion in debt. Why should we trust the government to put the wealthy people's money to a better use than the ones who actually created the wealth in the first place? Once the wealth is gone, it is gone. Someone else will have to come along and create new wealth, and with a possible wealth tax, will be disincentivized. There will be companies and technologies that do not get funded because of the wealth destruction involved with the wealth tax.

It looks so easy. There is a big pocket of money (technically, it is not money, the wealthy have a large portfolio of appreciating assets that were purchased with money). And we can do so much with it, they say. The supporters say we will just ask for a small amount that the wealthy can afford and nothing else will change. The problem is that everything will change. It is the phenomenon of the action producing an equal and opposite reaction. When you take appreciating assets out of the economy and put it to agencies that do not add value, you will destroy everyone's wealth and the economy right along with it.

This has become my line in the sand. Any politician that supports a wealth tax will not get my vote. Period. The cons clearly outweigh the pros to me. I have often lived by the saying to be careful what I pray for because I might actually get it. Tread carefully.

Time To Remove The President

It is time to impeach, try, convict and remove President Donald Trump from office. Many people will read that and while they may agree will simply regard me as an opportunist who is way too late to the party. Others will vehemently disagree and throw rocks at me. So be it. I do not reach this conclusion lightly or hastily, but after pondering for some time and without emotion.

Why and why now? The President is completely off the rails and so is his Presidency. It started right away in 2025 with him unleashing ICE indiscriminately, unilaterally imposing tariffs and has become progressively worse this year. It started with his prosecution of the war in Iran. There was no strategic objective. He did not consult with Congress beforehand, likely consulted very little with the top military leaders and thought that the Mighty Trump dropping some bombs would bring the Iranians begging. It did not. In fact, the war has become a negotiation to keep the Strait of Hormuz open, which is where we were before dropping any bombs. Mr. "Art of The Deal" has been played by the Iranians, whose demands seem to show that they are in no hurry to sign a deal to end the war. Finally, this week at the UN, Mr. Trump threatened to "annihilate" Iran. Why is the President of the United States using language like this?

To be fair, there were a lot of potential benefits to a war with Iran. First, the Iranian government has been at war with us for 47 years. They just do not engage us directly. Instead, they have funded terrorist proxies across the Middle East, from Hezbollah in Syria and Lebanon to Hamas in Gaza, and the Houtis in Yemen. Taking out this regime would eliminate the #1 funding source of these terrorist groups and bring a great deal of stability to the Middle East. It would all come at a tremendous cost. It would involve "boots on the ground" involve a multi-year commitment and leave mass casualties. Those are costs that I am not sure Americans are willing to pay right now. But Mr. Trump did not consult with anybody beforehand. The Senate Minority Leader and the House Minority Leader both say they were not briefed on anything from the President before the bombs dropped. This is unconscionable. Say what you will about George W Bush's efforts in Iraq, but he did at least receive Congressional approval before going in. Trump did none of this.

He has dragged his Presidency into such important messes like putting his name on the Kennedy Center For The Performing Arts, tearing up the East Wing of the White House to build a ballroom and building an arch at the entrance of Arlington National Cemetery. First of all, who names a public building after himself? Second, the ballroom is a grand waste of money, and the arch is another example to the rest of us of his self-importance. Mr. Trump has no governing center. He is not a conservative. He is not a liberal. He actually has a lot of Socialist in him, for a man who constantly rails on Socialists and Socialism. He is narcissistic authoritarian. He will do anything to make Trump look good, and if he has to sell his supporters down the river, he will do it in a New York minute.

It is looking more likely that the Democrats will take both the House and the Senate in the mid-term elections. So Mr. Trump offers a $5,000 per person bribe if Republicans retain their power in Congress? Does anyone believe this? I do not believe it for one second. But the gesture points to something more significant. The President is losing support among his followers. This is clearly a desperate measure. And the Democrats would have a great shot right at the outset to remove him from office. This could potentially be a bad look for the Democrats. First thing they do is try to remove the President? I think they have a case, and I think they have the support of the people. An impeachment starts with a vote in the House on articles of impeachment, which requires a simple majority. The articles are brought to the Senate, where the President is tried and if two-thirds of the Senate votes to convict, the President is removed from office. That would require 67 votes in the Senate, which means the Democrats would need some Republican votes. I think they can get it. There are some Republican senators who I think would vote to convict. No President has ever been convicted in the Senate, but Andrew Johnson survived by one vote in 1868. Nixon would have been convicted if it was ever brought to a vote, which brought about his resignation.

It is time. Remove the President.

What Does The "Glow of An Expectant Widow" Look Like?

 Last Thursday, talk show host Jimmy Kimmel ran a bit on his show in which he was the MC at the White House Correspondent's Dinner (WHCD) when he lovingly and affectionately mentioned to Melania Trump that she looked like someone with "the glow of an expectant widow." Kimmel has faced a firestorm of accusations about this comment, including calls from the President and First Lady that Kimmel should be fired.

Kimmel is protected by the First Amendment right to freedom of speech. I do not believe that he should be fired over this one comment. He has the right to speak offensively and hatefully, and he employed both in this one statement. I will not make any calls to take those rights away from him. In his role, he also has the right to be funny, a right for which he has yet to take advantage. 

Was this comment objectively horrible? Yes. No one tries making jokes about someone potentially dying. Was the comment offensive? It was offensive to this widower. I never got to experience "the glow of the expectant widow(er)" because I was never one. My wife passed very suddenly, very unexpectedly and violently. As a result I was never "expectant." But I do have a soft spot in my heart for widows and widowers, especially those who lose a spouse at a tragically young age. I have been there and I know the hurt that the surviving spouse is feeling. This comment does not offend because of any perceived hurt on me. But in this moment, I think about the surviving spouse of a friend who passed away on April 15 from ALS. That has to be one of the hardest, cruelest deaths imaginable as it takes away all your physical abilities. ALS has no cure and has a 100% fatality rate. His wife stayed faithfully by his side throughout the entire ordeal. As a text message I received said, "As her MIL she was extremely kind and gave me an open door policy to come see (Name redacted) whenever I wanted. We all appreciate what she did for (redacted)! Never left his side for months! My heart hurts for her!" That is a saint. Those two were married less than 5 years ago. She spent about half her marriage caring for her dying husband, knowing there was no chance he would ever get better. I want to look Jimmy Kimmel in the eye and ask him, "What does the glow of this expectant widow look like?" This woman by now is exhausted, emotionally beat up and about to shed enough tears to fill multiple swimming pools. Again, I ask, "What does the glow of this expectant widow look like?" I fully expect that if I ever got that chance, he would pussyfoot around the question and give me every non-answer he could. I have no idea what the glow of an expectant widow looks like. I have never seen one. The expectant widows I know do not "glow." One thing I know for damn sure is that it is not funny.

I can understand Mrs. Trump's frustration and her call to have Mr. Kimmel fired. As mentioned earlier, Kimmel is protected by the Constitution and the right to freedom of speech. It does need to be noted that Mrs. Trump's husband has said some awful, horrible and vomit-inducing things about others after their passings. The most recent was the President's statement after the passing of Robert Mueller in which he said, "Good. I'm glad he's dead." There is no excuse for that type of statement from the President, and Melania's words fall on deaf ears quickly. 

There are plenty of reasons to fire Kimmel, should Disney want to go that route. This is at least the second time in the last 6-8 months that Kimmel has publicly embarrassed his bosses at ABC and Disney. Kimmel routinely draws audiences of around 1.7-1.8 million per night. By comparison, during the 1970's and 1980's, a time with many fewer TV sets and eyeballs, the GOAT in Kimmel's business - Johnny Carson - was pulling in 10X the number of viewers that Kimmel draws today. In fact, Carson's average audience was triple what Kimmel, Colbert and Fallon draw - combined. Carson put together a quality, genuinely funny show that did not have to routinely fight off calls to be fired over comments in poor taste because he did not go there. 

While I do not believe that Kimmel should be fired for this one comment, I would like to see Disney put out a strong statement of disapproval. Kimmel was trying to be funny and taking his shot at the Trumps. However, his comment hit people like the woman I mentioned above. And I find that highly offensive. As for me, I have never watched his show and I will not start now or ever.

In The Age of Hate - Love Your Enemy?

Today is Palm Sunday, and the beginning of Holy Week for Christians around the world. We prepare for and reflect upon the Last Supper, the arrest, trial and crucifixion of our Lord and Savior, Jesus Christ. And we remember the ultimate triumph, the resurrection and Christ's victory over death. For me, I reflected on all this by going back and reading his very first sermon - The Sermon on the Mount found in the Gospel of Matthew, chapters 5-7. This is the core theology of Jesus. The words were radical then and they may be even more radical today. I am particulary struck by the words of Jesus in Matthew 5:43-48.

"You have heard that it was said, "Love your neighbor and hate your enemy. But, I tell you, love  your enemies and pray for those who persecute you that you may be children of your Father in heaven. He causes his sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous. If you love those who love you, what reward will you get? Are not even the tax collectors doing that? And if you greet only your own people, what are you doing more than others? Do not even pagans do that? Be perfect, therefore, as your heavenly Father is perfect."

What? You've got to be kidding me! Jesus was not kidding. Love. Your. Enemies. In our society today, one in which we have normalized, rationalized, and justified hate, how radical would it be to love our enemies instead? Have you ever prayed for an enemy before? I do not know that I have. The closest I think I came was from about 8th grade for me. Those who know me are aware that I played plenty of baseball as a kid. We enjoyed our share of success, but we had one team that we could not beat no matter what. We thought they were all obnoxious and a bunch of bums. Definitely not human. It was easy to make them an enemy. Then along about 8th grade, one of their players encountered a serious kidney illness that was going to require major medical attention. One night after our team had a baseball practice, we all loaded into our various coaches' cars and headed over to this young man's house to give him a couple of presents and to let him know that we were pulling for him. And we prayed for him. Right there in his bedroom, where he was basically bedridden. I hope that he felt blessed in those few moments that we spent with him. But, it changed me. I think for the first time I saw this young man, and all his teammates, as human. And in my own heart I sincerely wished for the best for him. Now, do not get me wrong - the next time we went out and played against these guys we wanted to beat the crap out of them. We failed, and they continued to have their hold over us. But I was changed.

Jesus told us to love our enemies. He did not say "Do not hate your enemies." That leaves a lot of room for indifference. He does not want us to be indifferent. He wants us to love our enemies. Who even is your enemy? The best I could come up with is that an enemy is someone who actively wants you to fail without any regard for you. In the big scheme of things, an opposing player is not an enemy, but a rival or an opponent. 

These are tough words. "Be perfect, therefore, as your heavenly Father is perfect." Make no mistake that perfection is the standard. Have I lived up to it? Not even close. This is where grace comes in, but that is for another day. Love your enemies. I love my friends and family, particularly my immediate family. My kids, my friends, even my wife who has been deceased for several years now. And you want me to have the same feelings for my enemies that I have for those closest to me? And to demonstrate that love when called upon to do so? That's a tough ask, but that is what the Lord demands. 

These words have been on my heart this week as I have re-read the Sermon on the Mount. I have read these words several times in my life, and it is easy to skim over the words and not give them much thought. Love your enemies. In today's world that is some radical thinking. I would encourage you to open your Bibles and read the Gospel of Matthew, chapters 5-7. And really focus on the words of Jesus.

Finally, as for the opposing baseball player, he is very much alive today, and by all accounts has been quite successful in life. And I am truly happy for him.

The Inevitables

 Back in the 1990's, investor Warren Buffet talked about 4 stocks in his investment portfolio that he called "the inevitables." He described their businesses as almost bullet proof and indicated that he would never sell any of them. Fast forward 30 years, and how things have changed! The four publicly traded inevitables were Capital Cities/ABC, Coca-Cola, Gillette and the Washington Post. Today, only Coca-Cola remains in Berkshire Hathway's portfolio and the other three are hardly at the top of their game. What happened?

Three of the companies were purchased and taken out of the public markets. Capital Cities/ABC was purchased by Disney. Gillette was purchased by Procter & Gamble. The Washington Post was purchased by Amazon CEO Jeff Bezos. What is surprising about this is that these Inevitables are struggling today. Capital Cities/ABC owned the ABC television network and ESPN. Both of these networks are struggling today, the victim of increased competition and changing consumer preferences. Gillette has seen increased competition in razor blades, deodorants, and facial care in general. Finally, today the Washington Post announced that it is laying off 1/3 of its staff. 

What happened to these companies? In short, the world changed. Mr. Buffet always liked the local newspaper business. It was basically a legal monopoly, as most cities had just one major newspaper, meaning there was very little competition for advertising dollars. Then, along came the Internet. The local newspaper business died out as people got their news from the Internet, which cratered subscriptions, which in turn cratered advertising revenue. These factors put the Washington Post on life support, and given the public's increasing distrust of the media, and today's announcement was not surprising. Just as an example, I use X as my newspaper, following a variety of journalists from all over the country. X is my sports page, it is my front page. And it is free. We take it for granted today, but 30 years ago, this was barely a dream.

Gillette pioneered the "razor blade model" of business, giving it a dominant market share in that business. The company hit on the idea that they could basically give away their razors and make money on the interchangeable blades, which consumers would have to buy over and over again. In addition, manufacturing razor blades was highly specialized, which also discouraged competition. But, in recent years, lower priced competitors have entered this space and Gillette has lost market share.

If I think about this too long, I am in a state of disbelief. Thirty years ago, the greatest stock market investor of all-time basically declared that these four companies were the very best investments in the world. Today, his beloved Washington Post is on life support. Capital Cities/ABC (now a part of Disney) is nothing to write home about. Gillette and Coca-Cola are just fair to middlin' companies. What happened? The world changed and these companies did not change with it. You can never rest on your laurels in this big, bad world. Finally, do not weep for Mr. Buffet. He made many millions on the sale of these companies, and he still owns his full stake in Coca-Cola.