Market Commentary

Tax Changes Behavior

Most investors understand the tax consequences of their actions when it comes to investments. CEO’s make decisions based on tax policy as well. A new study shows that billionaires tend to move out of states with high estate taxes and the older they get the more likely they will move to another country to mitigate taxes.

Decisions made based on tax consequences are not always the smart thing. For instance, companies that have to keep an eye on the bottom line often make short-term tax decisions to reflect on the current or next quarter’s earnings.

Politicians constantly make mistakes on tax policy looking at what income can be produced for their favored government program. This usually is done with little research on the long-term effects on the economy or the workers in the economy. The most obvious poor tax policy that I have experienced is in California. A number of years ago California enacted a 10% ’ luxury tax’ added on vehicles and boats over a certain value. All that did was drive sales to other states and collapse the boat building business in the state until they repealed the tax. It did not produce a tax increase. Instead, tax revenues shrank and many people were laid off from their jobs.

Whether you are buying a house, investing in the stock market or building a business, everyone has to consider tax consequences carefully.

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