The dog days of summer are an unusual time to be writing about taxes. So, why am I interrupting your summer BBQ or beach holiday with commentary on taxes? Given that the political environment has never felt more divisive than it does right now, I tried to select a topic for this month that has nationwide agreement. Americans hate paying taxes. Sure, some folks take pride in paying their taxes for government services rendered. Sort of a taxes as a necessary evil philosophy. And, of course, there are raging debates about who actually pays or should pay their fair share of taxes and which types of taxes are most tolerable (e.g., income, payroll, capital gains, estate, property, sales, value added tax, corporate, etc.). However, when all is said and done, nobody, and I mean nobody, likes paying taxes.
While taxes are generally a mid-April matter, there are many reasons why taxes should be top-of-mind for investors this summer.
It’s a Smile, It’s a Kiss, It’s a Sip of Wine…It’s Tax Time?
On July 4, Americans will celebrate Independence Day. And oppressive taxes, such as the Tea Tax and Stamp Act imposed on the colonists by Great Britain, were a main catalyst for the American Revolution. In some ways, the July 4th holiday is an annual reminder that Americans' extreme dislike of unjust taxes traces its roots all the way back to the birth of our nation.
Also this year, in response to the COVID-19 pandemic, the traditional US tax day of April 15 has been extended three months, to July 15. Therefore, in the next few weeks many Americans will be gathering their tax-prep documents and firing up the TurboTax® Deluxe software to see where they stand with Uncle Sam.
Finally, the US election is just four months away on November 3 -- and both the Democratic and Republican National Conventions are scheduled to be held in late August in Milwaukee and Charlotte, respectively. That means how to pay for the massive fiscal and monetary policy responses to the COVID-19 pandemic will be part of this summer’s political debates.
Some estimates of the US budget deficit now exceed $4 trillion in 2020. Congress has already passed four separate pieces of legislation totaling $2.4 trillion and a fifth stimulus package with a $1.5 trillion price tag is expected to pass this summer. The Federal Reserve has pitched in too, expanding its balance sheet by more than 70% this year to $7 trillion as of June 22. Finally, the US national debt stands at $26.3 trillion, rapidly on its way to an embarrassing $30 trillion burden for future generations.