Curb your appetite for high returns

Returns from the stock and bond markets aren't what they used to be. Today, we are mired in an economy going nowhere, which provides limited investment opportunities because of the twin government sins of excess spending and overhanging future tax increases. Forty percent of taxpayers pay 90% of all income taxes, and the top 5% of taxpayers pay 40% of all income taxes. What is the “fair share” to be paid that government asserts the taxpayers are not already paying? Two huge pieces of misinformation cloud our view of what is really happening:

1. Should the government confiscate 100% of the income of the top 5% of taxpayers, there would only be another $350 billion to $400 billion of taxes. The government deficit is $1.3 trillion annually. Taxing 100% of the income of the wealthiest taxpayers would provide less than one-third of the funds necessary to close the deficit. Further, all of that $350 billion to $400 billion gets reinstated in the economy, and there would be no capital to re-invest in our economy for growth.

2. The fiscal cliff. We are told that if the problems with the “fiscal cliff” are not resolved, spending cuts and tax increases of $675 billion will occur. As mentioned above, deficits of $1.3 trillion will not be resolved with only $675 billion of spending cuts and tax increases, half of what we need to close the gap. How do we invest in an economy with upside-down numbers of this magnitude?