The Draconian – Why Do Taxes Matter

My step-brother Jeff Jones, of Jones & Company and the affiliated Draco Capital Management, publishes a newsletter called The Draconian.  I am a fan of his work and I encourage you to check it out.

Today he posted an insightful article, Why Do Taxes Matter, focusing on our current economic direction.  What I like most about this article is that it is exudes an optimistic tough love for the US economy.  My pessimism and distrust of our political representatives tends eat away at my expectation that these representatives will take the necessary action that will enviably lead to the pain necessary to steer this ship away from the looming economic abyss.  I feel that there is a basic flaw in our system in that our representatives, and their biggest contributors, are the very people who will face the biggest changes.   Law makers exist in an election to election time frame and massive industry exist quarter to quarter.  Decisions are not made and representatives are not chosen for their 20 year plans.  Rather, policy is made by what can be accomplished during the next term.  So I struggle with how deeply the self interested will proactively slaughter their cash cow despite the fact that doing so appears necessary to save the herd.

Thank the maker that there are optimists like Jeff out there! In his article, I think Jeff does a fine job of taking a sober look at the pieces in play and summarizing scenarios available to navigate the coming tempest.

I’m not sure who these politicians are trying to impress with all of their debt ceiling games and partisan rhetoric, but anybody that can’t see that getting out of this jam involves sacrifices all around needs a good smack upside the head.

Well put!

When it comes to making sacrifices, it’s always more fun if the other guy does it.  But as this all plays out over the coming decade or so, it’s going to touch everyone.  Those sacrifices will come in three broad forms:

  • Tax increases for the rich.  And probably the middle class and poor as well.
  • Reduced entitlements for the middle class and poor.  And probably the rich as well.
  • A weaker currency for everybody.

I mean… this is really easy to see, right?  Is this whole thing as perfectly clear to you as it is to me?

If money and power are akin to seductively addictive drugs, I tend to think this question is like asking an presently inebriated alcoholic whether he’s finally had enough.  After peeling his cheek from the floor and swearing off the stuff until the end of days, two beats later he’ll crawl up the bar stool calling out, “We’ll have another round!”  While the ailment and the causes might seem clear as day, the necessary steps toward a cure require rational long term thinking that may be elusive to those under the influence of their position.  There I go again with my pessimism!

My Debbie Downer-isms aside, I think Jeff brings the light at the end of the tunnel necessary for our economy to strive to do better.  It will be interesting to see what his expectations as to timing are.  Off the top of my head, I think if painful changes are going to be made, I hope it gets going sooner than later.  Otherwise, we will be lucky if they are done at the last tick before economy goes up the Bruckheimer style.