With so many stock market bashers on the Democratic side, investors need to really fear a sweep in November. If you like tax breaks with your investments, the bell tolls for thee.
It should not come as a surprise to anyone that Joe Biden is now planning to get rid of preferential tax treatment with investments, eliminating the tax break on capital gains and dividend income that is so cherished by investors.
This is on top of everything else he has planned, including his long plan of raising corporate taxes from 21% to 28%, which will in itself likely put a big hurt on stocks all by itself. This does not mean that corporations will just eat the losses themselves and not put prices up though, and it only takes a modest understanding of economics to realize that this will indeed raise the price of everything proportionately, not by way of anyone’s volition, but simply because that’s how markets work, as sure as the wind blows when a storm comes in.
Higher prices though are not a good thing for companies as this has them selling less, once again without any human interference but by way of the market winds alone. We don’t need any graphs or numbers to show how this happens though.
Taxes are one of the costs of production, in the same way that higher costs of labor add to the unit costs, and the higher it costs to produce something, the more we have to charge to sell it. Higher taxes putting up the price isn’t quite this transparent, and we do have to go a little deeper to show this, but not so deep to not make this relationship easily understood by everyone.
Producers compete with each other to sell to their markets, and this serves to set a floor on prices, which includes all of their costs plus a market return on their investment. In competitive markets, which is any market that is not a monopoly, the price of something will settle in to where producers cover their costs plus a certain level of profit.
This is where a lot of people get confused, where they think that deciding what is a reasonable return on investment for a business is some sort of voluntary choice, where we can put up their costs and they will just eat the loss and accept lower returns, especially if we look at these profits and consider them to be on the greedy side before these changes.
That’s not how it works at all though, and these profit margins aren’t decided at all by people, but by the market. It is a given that producers will seek to maximize profits, but it is the market that sets their prices and their profit margins. They are more than happy to reduce their prices to increase their profit, but this is a requirement, and we cannot ever expect companies to charge less for any other reason because profit is their sole goal.
The only time that a producer will lower their price in fact is when it increases their profit over what they take in at the current price. Let’s say there are two companies in a market who each sell 10 units at $10 each. It costs $7 to produce a unit, and each company therefore makes $3 per unit or $30 each.
Company A puts their price down to $9 and now sells 15 units at that price because some of the people who have been buying from Company B see this lower price and switch. Company A now makes $135 in profit while Company B’s profits are now down to 5 units at $10 or $50.
Company B now needs to put their price down as well, and they choose to now price it at $8 which is the minimum amount that they need to charge to make the minimally acceptable return on investment. They can’t put it down to $7 because they would no longer make a profit. Now they have the 15 units of business and their profit increases from $50 to $120.
Company A needs to respond as now they are only selling 5 units at $9 for a total of $45 in profit. They cut their price to $8, see their unit sales rise back up to 10, see Company B’s unit sales also drop down to 10, and both are now making $80 in profit.
Neither company can reduce their price to $7 because now they aren’t making any money, and that’s the opposite of what they want. If either company starts charging $7, and this boosts their sales to the 15 that we see whenever either of them puts the price down, but now it’s 15 times $0 which is less than the $80 they had before.
This has now put the other company’s profit down to $40, but they know that this isn’t going to last for long, that the other company will realize their mistake and do what companies do, to set their price to maximize their profit, which in this case is a price of $8.
If the cost of production goes up, to $8, now both companies need to put their prices up, because now they do not make any profit from their sales. In the end, each company puts up the price to $9, because $1 per unit is still the minimally acceptable profit level, and this is the case whether the additional $1 was due to production costs rising or whether this takes the dollar off of their gross profit.
An additional dollar has been added to the costs and this additional dollar must be added to the price charged to achieve market equilibrium again. While markets in real life are a lot more complicated than this, the way that increased costs and profit maximization interact will remain the same and we’ll always see these costs passed on, not partially but completely. Competition has already knocked down the price to minimally acceptable levels, so we just add the extra costs to the old price to get the new price.
Any free market will always seek this equilibrium, where any price change, whether up or down, will need to seek the goal of profit maximization because that’s what for profit companies do. Equilibrium will always be established at the floor where a price change either way will reduce profits, which also happens to be the level where the profit margin is high enough for them to want to continue production, the amount after taxes that they need.
While there are some sectors that are in their nascent stage where companies may set aside profit to try to grow their market share, like in the ride-sharing business, this sort of thing can’t go on too long because it would simply drive everyone out of business, where even if we get down to one survivor, they will have to become profitable to survive themselves, and this attracts new entrants in this profitability phase, and the market matures and starts behaving normally.
The price equilibrium that we reach also involves a market-determined minimal return on investment, and market forces already drive this number down as low as the market will bear. Taxes are actually part of the net costs of production because just like any other costs, it will require a corresponding price increase to offset it, just like higher labor costs would, as both of these put down net profit, which was already as low as it could go prior to the tax increase.
This is why economics tells us that corporate taxation is a pass-through mechanism, and this is never a matter of companies choosing to pass it along, as market forces alone perform this act, the pursuit of profit maximization. If a company tried to resist this, this would function like any other poor business decision where they charge too less, which would see both the company and their stock pay the price, where we could say that bad decision making would eventually succumb to equilibrium, whether that be corporate change or their going out of business and replaced by a wiser competitor.
The Truth Always Has the Last Word in Economic Debates
This is what economics looks like when we practice it sensibly, but some economists seemingly cannot resist coloring their views with bias, perhaps letting their contempt with capitalism either approach the matter too superficially, deducting these tax amounts from corporate profits and not actually use even basic principles of economics such as we are discussing here, just stopping at the point that puts a wry smile on their faces and not wishing to go further down the path of truth where it may turn into a frown.
This might seem hard to believe that people who are supposed to be experts in this could practice their craft like such neophytes, but it’s not always so easy for people to set their emotions aside, where they can go from economists to bad political philosophers. The Democrats do have some people who call themselves economists in their stable, but they choose among those who have let their left-wing biases blind them sufficiently to be willing to help promote the party’s ignorant view of economics.
The price of goods therefore goes up from this additional taxation and consumers pay it, all of it in fact. Unwittingly, Biden is taxing not corporations but consumers, and given that corporate taxes puts up the price of everything, this does not just spread the burden of this around evenly. Like with all consumption taxes, those with lower incomes pay a higher proportion of it to taxes, since consumption represents a higher proportion of their overall income.
As for the effect on the economy, higher prices mean that people can buy less, where they have to cut their budgets on things and give the money that they save from doing without to the government. With less spending, the economy shrinks in turn, and as we produce less, people get laid off and that spurs even less spending and even more job losses.
Different types of taxes have different contractory effects on the economy, and the broader based a tax increase is, the more contractory it is. It doesn’t get any broader than corporate tax hikes, the opposite of what people like Biden thinks, but Biden and his gang obviously know very little about economics, which is a real shame.
The approach here is similar to their rationale of wanting to be rid of law enforcement, where their fists go up in the air and they somehow miss the fact that doing this turns over the control of our cities to criminal gangs. Given that even sheer insanity does not give them pause, we should not expect them to approach economic issues any differently.
If Biden wins the presidency, which looks very close to a sure thing now in spite of what Trump’s campaign may want us to believe, it is still not a given that we’ll see this or other things on Biden’s wish list get fulfilled. This includes his plan of getting rid of capital gains and dividend income tax treatment, where he wants all this to be taxed at normal rates given the chance, and he may indeed get that chance.
As far as Biden’s chances go, we can’t just look at him being ahead in national polls, even though he does have a healthy lead right now. Maybe it’s 8 points now, but there is a lot of time between now and the election and we might think that this can change at least that much by then.
Elections in the U.S. aren’t decided by popular vote though, and if they were, Hilary Clinton would be president now because she beat Trump by a couple of percentage points in 2016. What we do instead is assign a certain number of electoral votes to each state and if you win the popular vote in a state, you get their electoral votes, with a couple of exceptions in Nebraska and Maine who can potentially split theirs, but this does not add up to enough to even bother considering.
Trump beat Clinton in 2016 by a count of 304 to 227, so this race turned out to not even be close in spite of less people voting for Trump overall. Trump won the right states, but in 2020, that honor falls upon Joe Biden, where his lead in the polls does not portray the massive lead he has in the race.
While things can change between now and November, we actually need a change of much bigger proportions than Trump catching up in the national polls, as just like Clinton held this advantage last time but got soundly beat in the electoral college, Trump finds himself behind the 8 ball this time, and it’s barely imaginable how he could pull this off right now.
The big swing states in the last election that Trump used to put him over the top and then some are all on the Democratic side right now, the ones that he needed to win to become president, and ones that he still needs to win and then some to remain in office.
There are only 4 states that are considered by pollsters as toss-ups this time, and when they count up the rest, the electoral college votes that each is likely to get, the count is Biden 279, Trump 169. Since 270 electoral votes are needed to win, Biden is already over the top without even counting these other states, with Trump needing to score over 100 more votes to win.
There isn’t even 100 left to take, and among the toss-up states, Trump is ahead in only one, Georgia’s 16 electoral votes. Biden leads in the other three, and when we add up all these numbers, Biden ends up with 341 to Trump’s 185. This is not to say that this cannot change, but Trump is so far behind that he is virtually down to prayer now, and it’s extremely unlikely that his prayers will be answered.
By Winning the Senate, the Left-Wing Fanatics Will Rule Unopposed
For Biden to truly be crowned king, with all of those heavily left leaning colleagues of his becoming princes and princesses, the Democrats will also need to win the Senate, where the Republicans now hold the majority. Up until recently, Republicans at least had a reasonable chance to keep it, but things have turned the wrong way for them, to the point where there is now a serious risk of a Democrat sweep.
When we add up the seats that each party is expected to win, the Democrats hold 48, with the Republicans sitting with 47. This leaves 6 senate races yet to be called, and if the Democrats can only manage to win 2 of these, it’s game over for the Republicans as this would result in a 50-50 tie, which the Vice President would break. Given Biden’s virtually insurmountable lead, this would hand over the Senate to his gang.
Of these 6 swing races, the Republicans are only ahead in 1 of them, and they need 5 out of 6 to save themselves, not just one. It is the Democrats that are ahead in 5 out of 6 though, and if we had to bet on this, it’s much more likely than not that the Democrats will control the Senate as well as the House and the Presidency.
When we look to November, it is also likely that the sheer pounding that Republicans are getting from just about every popular media outlet will not let up, where if we had to guess, our guess would be that this gap in favor of the Democrats will continue to widen. Any attempt to reverse this by the Republicans will have to deal with the fact that the Democrats have more to spend on their campaigns as well as having almost all the media in their pocket, media that is grotesquely biased toward their party and ideology.
The media has been left-leaning for a lot longer than just during the Trump presidency, but their particular hatred of Trump has really galvanized their movement and they hate Trump, and in turn his party, more than they have hated every other president before him combined.
Just about all of their efforts are concentrated in disparaging Trump as much as possible, where the actual news and even the truth takes a big back seat to this. He is second in their eyes only to the Devil himself and they won’t be changing their mind for anything.
They are also doing their best to portray Biden as the man who will be riding in on a while horse to defeat the black horse riding Trump, and as they do their best to paint Trump in as bad of a light as possible, not even being restrained by absurdity, they are also doing their best to hide Biden’s faults and promote his ideas and plans in a way that may be even more partisan than the Biden camp itself is, not only brushing off potential criticisms as the politicians do, but hiding them from people’s eyes completely.
When we take the way that the polls have been going and add in all this extreme media bias, and especially look at the trends, the likelihood for the Democrats completely running the show appears high right now. There is no real hope for Trump, and while there is still hope for the Republicans keeping their Senate majority, these hopes have dimmed from maybe to probably not and get dimmer with each passing week now.
Considering that Biden is seen as a moderate, you can bet that anything he is putting on the table himself, like this corporate tax cut or the loss of preferential tax treatment with investments, is going to happen, plus probably a lot more. Biden is also crowing about how the wealthy need to pay their “fair share,” and he and his cronies are going to be deciding what’s fair, and this means even more taxes and an even more contractory effect on our economy.
We also need to deal with ideas of people on his wings that will impact the economy in an unkind way, such as wealth taxes and surcharges on financial transactions. We were able to push these ideas aside when they came out due to the Senate coming to our rescue and banishing these ideas, but once the Senate is theirs, we’re down to prayer as well, and they won’t be answering the prayers of investors since they consider them in need of not help but punishment.
Those saving for retirement need to be paying particular attention to Biden’s latest plan to hurt them, as losing capital gains and dividend tax benefits will take the majority of them from not so good of a place to a significantly worse one. Most people haven’t saved up near enough to be comfortable in retirement nor can they expect to, and when Joe Biden takes away a big chunk of it that you were expecting to keep, this is not something to look forward to.
The talk on the street now is for companies to pay out special dividends so that their shareholders can have one more kick at the can before tax rates on capital gains and qualified dividends dramatically increase. These tax breaks are designed to help people save for retirement as well as promote investment, we’re getting ready to throw this under the bus. Just about every government offers these tax breaks, because they make sense, but they aren’t compatible with the radical socialist views that are infecting our political climate like a pandemic these days, a radicalism that is about to go mainstream.
Biden and the Democrats profess to be a party of the middle class, while they portray the Democrats as pandering to the very wealthy, but in reality, their policies instead play to the low-income segment of our country, and do not even serve them well.
The poor doesn’t invest in the stock market very much so tax hikes on stocks won’t really hurt them, but they need to buy things or die and the way that raising corporate taxes will leave them with needing to get by on even less surely cannot be an acceptable outcome to anyone.
They also need jobs, and if anyone thinks that shrinking the economy and increasing unemployment, especially among lower-paid workers who are more sensitive to economic changes and also more expendable, is going to be helping them, or anyone, they have another thing coming.
We can only hope that people come to realize more how harmful this is for the country and actually think a little more about what they are choosing in the future, given that things are very likely lost now.
The political balance in the media probably won’t be changing, but we at least need to deal with all the brainwashing that they are perpetrating and try harder to reclaim our minds from them, which is not optional if we do not wish to continue on the path to economic and political contempt that we have now set ourselves upon.