Will Politicians Come after your Wealth?

Monthly Market Commentary: February 1, 2019

Thanks to expansionary monetary policies, US, household net worth has soared over the last twenty or so years.

However, if we look at which wealth group did well and which wealth group lagged behind, we find that the wealthiest of US households reaped all the gains in household wealth. Depressing is the fact that according to the Fed’s own statistics, the median net worth for the bottom 50% net worth group actually fell after 2006.

Given the rise in income and wealth inequality, which was caused mostly because of “money printing,” it is not surprising that the call by politicians for some kind of wealth tax for high income and high net-asset holders is gaining popularity.

I am bringing up these facts because it is quite evident that in future every democratic candidate will call for some tax on the wealthiest income recipients and asset holders. So even if wealthy Americans despise Mr. Trump they may have no other option but to vote for him if asset preservation is the objective.

Personally, I am certain that within a few years we shall have some sort of wealth tax for the highest wealth owners and income recipients in most, if not all Western democracies.

More so, if social-democratic candidates want to take your money and redistribute it to the people who keep them in power there will indeed be more government spending that they can’t afford and there will be more bureaucracy, which will depress economic growth and bring along even more central planning. Equally, a socialist could argue (and I would have to agree) that the elite took money from 90% of the population by having the Fed and other central banks pursue monetary policies that lifted most asset prices and increased wealth and income inequality grotesquely.

I suppose that from an investment strategy point of view, more socialistic US policies mean that investors should reduce positions in the US assets and specifically in US equities, which seem to have an extremely high valuation relative to the rest of the world.

With respect to taxes, I smile at Sir Thomas White’s words who opined that, “In such experience as I have had with taxation – and it has been considerable – there is only one tax that is popular, and that is the tax that is on the other fellow.”

With kind regards   
Yours sincerely   
Marc Faber

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