I was out yesterday and noticed the price of gas was $3.22. That is down from nearly four dollars not long before the election. I’ve also noted that Apple stock has been falling rapidly over that same period of time. I think I know why.
Barack Obama was reelected.
The significance here, and it should be apparent in all investment related ventures, is that because of Obama’s reelection, the tax rate for the rich is going to go up after the first of the year. Let’s talk about what this means.
If you have investments and you cash them in before the end of the year you pay less taxes on your profit than if you wait until after the end of the year. The reason the election was the tipping point is that if the republicans had won the day there would not be the fear of the tax rate on the very rich returning to it’s previous rate as it was before the infamous Bush Tax Cut.
So speculators in oil are loosening their grip and cashing in. They have been controlling oil and thus gasoline prices, intentionally keeping a lot of oil out of the market to shorten supply and thus increase the price. In the case of Apple and likely other high-performing stocks, it is simply time to cash in before the tax rate rises. Make more money before the end of the year, make less money after the new year.
There are a lot of charts out there showing when the tax rate on the rich gets low enough we get a depression. I can explain why in very simple terms.
The lifeblood of the economy is money. While money is circulating that means people are spending money and while people spend money there are lots of jobs and everyone does well.
So the real question is: How do we get money circulating? Another question put another way is: How do we stop money from circulating. Same question, different angle.
The Bush Tax Cut crossed a threshold where the very rich found they could make more money trading paper on the stock market between themselves. They also found that they could best make even more money from squeezing ordinary people. So much money was taken out of the economy that it became starved and that is the important point. The economy is starved of its life’s blood.
Since lower taxes caused this problem we can look at the opposite extreme when the economy was best and we see that at that point the highest tax bracket was 90%. Outrageous? No.
This 90% rate is not simply taking money from the rich and giving it to the poor. If they really paid that rate then it would go into the system and we could have vibrant socialism. But that is not the way the system was set up with this shocking tax rate. There were deductions.
Use it or lose it.
If you are in that 90% tax bracket, you could pay that 90% on your income or you could invest it. What you invest in business you deduct from your income and get yourself into a lower bracket. The high tax rate does nothing more than prevent the über rich from choking the system by keeping the wealth of our nation hostage. If they invest their money instead they still own all the assets of their investment but it then necessarily circulates money and creates lots of jobs.
A nation’s wealth is not anyone’s to hoard. If those we allow to hold it will not act responsibly then it should be taken away from them. We need jobs and they have been refusing to invest in businesses that would provide those jobs. The issue can and should be forced.
Return the top tax rate to 90%.