Destiny vs Tom Wheelwright on Taxes & Economic Policies in 2025

In a recent discussion, I had a spirited debate with a colleague about the implications and management of the unrealized capital gains tax. I vehemently oppose this proposal for several reasons:

• It shifts money from long-term investments to short-term consumption, reducing investments overall.
• It poses substantial management challenges and acts as a disincentive to invest.

To further illustrate, let's consider a scenario:

1. I invest in an opportunity with a 5% tax rate that appreciates at 100% annually.
2. Other options appreciate at only 2% annually.

Even with increased capital gains tax, it's still more profitable to maintain the lucrative investment rather than switch to lesser-taxed, lower-return options.

The key point here is assessing where your money would go. More taxes might push people to consume rather than invest, affecting the economy and production. Current top tax incentives in the US tax code include:

• Business Investments: Investing back into your business is tax-free.
• Technology: The research and development deduction, which has massive benefits globally, was removed.
• Real Estate: The bonus depreciation incentive has significantly boosted housing since 2017.
• Energy: Biden's Inflation Reduction Act of 2022 offered renewable energy incentives.
• Agriculture: Possibly the biggest tax incentives are in agriculture, supporting food production.

When you heavily tax investments, you redirect that money towards consumption, reducing investments in housing, technology, and agriculture. This abrupt reallocation can lead to inflationary pressures due to increased demand and reduced supply.

The argument here isn't to eliminate necessary consumption. Balance is crucial. It's about the proportion between investment and consumption. Solely focusing on consumption can induce inflation as it pushes demand up without growing supply.

Looking at the broader economic implications, both demand and supply sides fuel economic growth. A lack of investment diverts money away from development and supply expansion, while excessive consumption creates unsustainable demand.

Even during Trump's administration, despite lower taxes, significant deficit spending indicated increased government-induced demand. The same applies to Biden's administration, where increased expenditure is driving deficits, albeit in a post-COVID environment.

Ultimately, the Federal Reserve's objective is to maintain a balance between inflation and employment through interest rate adjustments, without addressing government spending. In doing so, it indirectly influences the intricate balance of supply and demand in the country.