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September 26, 2016

In a recent business news video, Maria Bartiromo discussed an unprecedented, impending wealth transfer coming over the next two decades.   On a worldwide basis, the numbers reach to approximately $30 trillion, most of it being self-made or first generation money.  This wealth is held by a quarter of a million individuals whose net-worth is greater than $30 Million and, at least in the United States, is subject to the maximum estate tax rates.  Primarily, the money exists within private business with one-third being very liquid, the rest being capital.  The amount in the United States exceeds $6 trillion.  Most of the wealth exists in countries with high estate taxes, meaning governments might be in-line for huge tax wind-falls.  

Capital converted to taxes usually ends up becoming consumed rather than invested.  When capital is invested instead of being consumed it becomes the engine for economic growth and stability.  It’s been proven that when wealth is actually transferred unencumbered most often it’s invested and becomes part of future growth.  A major issue resulting from high tax rates, or uncertainty created by government meddling in the marketplace, is a reduction in available capital resulting low economic growth rates.

The tax policies of the two major presidential candidates couldn’t be more different.   The Democratic vision follows closely a recent headline; “Hillary Clinton has often said she wants the rich to pay their 'fair share.' Translation: More.“  Under her plan governmental revenue increases would come by capping itemized deductions, raising tax rates and surcharges on “the rich”, and raising the top estate tax rate to 45%.  The Republican Presidential candidate Donald Trump seeks to reduce income taxes, lower corporate tax rates from 35% to 15%, and most importantly completely eliminate the federal estate tax.  It’s the latter approach which has proven over the years to spur economic growth, something that has been sluggish at best under the current administration.

What is at stake in these visions, which are polar opposites, is the difference between consumption and investment.  The Republican plan seeks to move wealth, in a way that’s conducive to promoting investment.  The Democratic plan will have the effect of converting wealth into consumption.  

During the past ten years, U.S. growth at best has been sub-par compared with past averages.  This last decade of economic growth, becomes the first one without at least one year of 3% or greater growth; with an average of 2% or less.   Growth rates are direct offshoots of investments; something government policy has been increasingly strangling.  

A continuation of current administration policy by a Hillary Clinton will only continue to stunt economic growth, increase debt and force more Americans into poverty.  The federal government must become more accountable for where and how much it spends.  This is a requirement of all good government.  Many wonder how long we can continue in this environment of economic decline before this house-of-cards we know as "The Full Faith and Credit of The United States" collapses under the weight of mismanagement and bad government. 

Mark, Bill and John