Beneath the Surface
The “ONE BIG BEAUTIFUL” Tax Bill is the Opposite of What America Needs
May 15, 2025 • 5 minute, 57 second read
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“The income tax created more criminals than any other single act of government.” –Barry Goldwater
May 15, 2025 — In the year 428 BC, ancient Athenians imposed a special tax called the eisphora that targeted local business investments in the city-state. It was expensive and highly unpopular among investors. And wealthy Athenians simply stopped investing in local businesses to avoid the tax. This is almost an iron-clad lesson of history: whenever governments tax something, they end up with less of it. And the inverse is also true: whenever governments subsidize or cut taxes on something, they end up with more of it. In 221 BC, the Qin government of ancient China imposed a tax on salt consumption. So, people consumed less of it… which led to significant health issues given that salt was used to cure meat and prevent bacteria growth. In 202 AD, Roman Emperor Septimus Severus imposed taxes on olive oil production to help fund welfare for the city’s poor. Farmers cut back on production to avoid the tax, and olive oil supply dropped dramatically. In the year 1302, the Republic of Florence imposed a steep tax on new businesses and guild membership. Business registrations dropped by 20% over the next decade, and the Florentine economy suffered significantly. Around the same time, cities in Germany’s Hanseatic League (like Lubeck and Hamburg) offered tax exemptions to businesses and merchants. And as a result, the number of registered businesses (especially in Lubeck) rose by 30%. And finally, in 17th century Holland, the government offered tax breaks and subsidies to the sugar industry… resulting in, you guessed it, an explosion in per-capita sugar consumption and the invention of sugar-laden desserts. All of these examples make perfect sense; most of us have first-hand experience in taxes influencing our own consumer, business, and investment choices. And that’s why I’ve long argued that tax policy is a reflection of a nation’s values and priorities. I bring this up because the House Ways and Means Committee released its 389-page “big, beautiful” tax bill yesterday. It’s literally called “THE ONE, BIG, BEAUTIFUL BILL” in all caps. I read it last night… and I’m really scratching my head at how this bill reflects America’s current values and priorities. For example, families (with adjusted gross income of $200,000 or less) will be able to deduct up to $10,000 per year in interest on car loans. Given that the average auto loan rate is 4.77% for borrowers with top credit, this means that a buyer could theoretically purchase a 1,064 horsepower Corvette ZR1 for ~$210,000 with a loan from General Motors and write off all the interest. Yes, the vehicle must at least be ‘assembled’ in America, so there’s some support to the US auto industry. But clearly a tax break on auto loan interest will encourage more people to go into debt to buy a rapidly depreciating vehicle. And as much as I love Corvettes, I’m not sure this should be a national priority. An even bigger provision is the “No Tax On Tips” section. This was a big campaign promise to win votes from service workers in the swing state of Nevada. But in such a tip-crazy country as the US, where seemingly everyone expects a gratuity these days (including the self-service machines at the airport where no human being is even involved!), it’s a bizarre priority. Who even understands tipping culture anyhow? A pizza delivery guy almost always receives a tip. But a school bus driver (who must responsibly and safely transport dozens of children) does not. People will give ten bucks to a valet parking attendant who drives your car 50 feet. Yet, for all the times I ever heard “thank you for your service” when I was in the military, I never once received (nor obviously expected) a gratuity. Clearly Americans don’t value pizza over the lives of children, nor valet parking over national defense. But somewhere along the way, tipping culture in America got out of control. This legislation will make it worse… because now there will be an even greater expectation for tips. More importantly, what does this tax provision say about national priorities? They didn’t pass any tax incentives for careers that can substantially boost US economic growth, like AI developers or nuclear power engineers. Or even critical blue-collar jobs where the country is woefully short– like truck drivers and oil roughnecks. Instead, these politicians seemingly got together and said, “We want more blackjack dealers, let’s create tax incentives for that industry.” This will almost certainly have unintended consequences. Among them: many of today’s lecherous professions (like online “content creators” and webcam models) technically earn tips. So young people could end up with perverse financial incentives to take their clothes off for a living rather than do something productive. I’m not sure how this is going to Make America Great Again; frankly the whole “ONE BIG BEAUTIFUL BILL” is rather underwhelming and provides very little incentive for economic growth. Rather, it prioritizes more debt and more consumption… which is the opposite of what American needs right now. To your freedom, James Hickman P.S. from Andrew: We continue to enjoy our ongoing conversations with our members, whether through Grey Swan Live, or with our reader feedback on our daily emails – keep it comin’! Paul thoughtfully writes in:
First, Paul, thanks for writing in – and congratulations on your gains! We still see value in gold and silver, even though it makes us sound like a broken record. And we see bitcoin holding its own as well. As we’ve written before, these assets are worth adding to when you have extra capital. And all three may see some short-term swings if the dollar collapses dramatically, but these assets should hold their own over time. Regarding the bond market, we largely look at current rates, the trend in rates, and the performance of the yield curve. Remember, the bond market is where cautious investors park their money – and its value is larger than the stock market. We follow that up with by watching Treasury bond market auctions, which occur weekly. Sometimes they don’t have a lot of interest, which can create some jitters in the market. Just knowing those big trends can tell you a lot about what the cautious money thinks now. In the Grey Swan model portfolio, we have two bond ETFs, designed to take advantage of today’s relatively high interest rates, and with the potential to see outsized gains depending on changes in interest rates. Your thoughts? Please send them here: addison@greyswanfraternity.com |
