It could be said of every mentor I have ever had that “he did not suffer fools.” This didn’t mean that one could not disagree with them, but one had better have his facts straight and a logical argument or he was going to be put in his place. 

One of my bosses in particular had a gruesome reputation. One time I was talking with a member of the senior management team at a company party, and when I told him who I reported to, and he said something to the order of, “Good luck. People say I am jerk, but your boss really is a jerk.” (He didn’t use the word jerk, but this is a family blog.) In reality, my boss was extremely fair. He was extremely demanding, but I found if I did my job he rewarded me, and if I made a mistake, all he wanted was for me to own it and fix it without excuses. The people who got into trouble were the ones who tried to hide their mistakes. 

Said boss was also open to new ideas, as long as they were truly thought out. The skill of critical thinking is no longer taught, because somewhere along the way on the dumbing down of America we got the notion that to be critical is to be hateful. Nothing is further from the truth: critical thinking means when one has an idea or hears one, she then critiques the idea herself to measure its merit. In science one tests ideas by stating a hypothesis and then testing it rigorously to prove it is true or at least not false. This is the basis for critical thinking: one has to be able to be his own critic, and only then take his idea to other critics. 

A fool does no such thing. A fool has an idea and then just starts running with it. Further, he will simply ignore facts that are counter to his idea. I will admit, that like my mentors, I do not suffer fools well. I want to be clear: I have had many great conversations with people who disagree with me on many topics. I don’t mind that at all, in fact it is essential to critical thinking. Intelligent debate between two people who disagree sharpens both of them. It is mutually beneficial. However, when someone presents an idea to me which is based on lazy fantasy, it is like fingernails on a chalkboard. 

This happened recently. In writing a recent Insight I used a quote form Milton Friedman. I knew the quote but wanted it to be accurate, so I went to “the Google machine” to look it up. First thing I noticed is that what came up were negative articles about Milton Friedman. There is no economist who does not have critics, but this takes some doing, because Friedman’s supporters outnumber his critics tremendously. Curious, I read a couple of the articles. I disagreed with all of them, but most were well-written and thoughtful. All of them, interestingly, were written after Friedman passed away – these critics were not interested in a debate which they would almost certainly lose. 

However, one article stood out. It was published by Forbes and written by Steve Denning. Denning was arguing against the notion that the purpose of a corporation is to make a profit for the shareholders, and he referenced an article that Friedman had published in The New York Times on September 13, 1970. Friedman’s article, like most of his writing, would make a good read today as many of the trends we are seeing now were the same as we saw then. 

Denning’s critique was as follows, “…[T]he article states flatly at the outset as an obvious truth requiring no justification or proof, ‘a corporate executive is an employee of the owners of the business,’ namely the shareholders.” Denning goes on, “Come again? If anyone familiar with even the rudiments of the law were to be asked whether a corporate executive is an employee of the shareholders, the answer would be: clearly not.” 

Fingernails across the chalkboard, I do not suffer fools gladly. I am even sympathetic to Denning’s larger argument, which I’ll address in a second, but the reason Friedman stated “as an obvious truth” that each one of us ultimately works for the person or people who own the business is because it is an obvious fact. Perhaps this is not entirely obvious when looking at large publicly traded companies with thousands of shareholders, but those organizations represent a fraction of the corporations that are out there. 

Iron Capital is a corporation. I am currently the sole shareholder. Do you think an executive here has ever thought to say to me, “I work for Iron Capital, not you.” Sure, that is technically correct. When asked on a form for employer, one would write Iron Capital, but that is a distinction without difference. This is grotesque lazy foolishness and we as a society should not tolerate it. Facts are facts and cannot be dismissed. 

Denning went on to say that while almost everyone recognized that Friedman was correct, he claimed that it was they who “just wanted it to be true.” This can’t be made up. He then goes on to claim that business guru Peter Drucker, in his 1973 book Management, argued against Friedman. Drucker and Friedman were the super stars when I was a student of business and economics, so I have read them both extensively. Never in all of that have I come across a contradiction between those two. However, Denning says that Drucker’s claim that the purpose of the corporation is to serve customers is a rejection of the idea that maximizing shareholder value is the goal. 

I can understand how a third grader might get confused. Is the purpose taking care of the customers or taking care of the shareholders? Adult conversations should not be held at a third-grade level. In what universe does a manager maximize shareholder value by not taking care of the customer? That universe does not exist. These are not only not mutually exclusive ideas, they are also the same idea. To see this more clearly, perhaps one should add the phrase “in the long term” to the end. I would argue that in the early 1970’s, long term was a given. It certainly was for both Drucker and Friedman. 

Once again we will use Iron Capital as our example. Everything that happens here is for the benefit of our clients, and we do it in order to make a living. If we fail our clients then they will leave, and the shareholder value leaves with them. If we serve them well, they will grow their relationship with us and introduce their friends to us, and shareholder value will grow. There is no contradiction there. Friedman was an economist and he spoke like an economist, which is often cold. Drucker was a businessman and he spoke like a businessman, which is warmer than an economist. A visionary entrepreneur would be loftier and warmer yet, but in the end if one actually listens and seeks to understand she would recognize that they are saying the same thing. There is no real disagreement here. 

Unfortunately, this is the world we live in today. People make up their own facts and have bitter arguments over things that are not mutually exclusive. The examples are too numerous to list. It needs to stop, and it starts with having the courage to stop suffering the fools. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Suffering Fools

Frances Haugen has blown the whistle. Facebook and all its subsidiaries dominate the social media landscape, which has done real harm to our social fabric. Haugen claims they have known it all along – known what it is about their product that is harmful – and have decided to keep doing it anyway. It is a serious allegation and seems to ring true. 

Several years ago, I had the opportunity to work in Poland. I never officially moved as I still had responsibilities at home, but I would spend weeks at a time in Invesco’s Poland office. During one of those trips, I got a chance to tour the Nazi concentration camp, Auschwitz. It is estimated that more than 1.1 million people died there. Most were Jews, but the Nazis also killed Polish intellectuals and anyone they thought might challenge them. This I knew, but what I learned was even more horrifying. 

The Nazis turned death into an industry at Auschwitz. It started when they told their victims to pack one suitcase to take to their new home. The Germans knew that most would pack their most prized possessions, and the suitcases were confiscated immediately. There are storage rooms packed with them on display when one takes the tour. Hair was cut and used to make uniforms, and fillings were extracted from teeth for gold. Being there in person drove home just how evil people are capable of being. 

What does this have to do with Facebook? People who forget their history are doomed to repeat it. The lesson we should learn from the horrors of Auschwitz is that people can be convinced to do unspeakable things. People don’t just wake up one morning and decide to be evil; they have to be moved slowly but steadily in that direction. In 1924, nearly 20 years before Auschwitz, Hitler wrote, “Propaganda is a truly terrible weapon in the hands of an expert.” Joseph Goebbels was just such an expert, and for nearly two decades he and his Reich Ministry of Public Enlightenment and Propaganda slowly and steadily moved what many believed to be Europe’s most sophisticated society into a group that would create a place like Auschwitz. 

As Carl Jung so famously said, “People do not have ideas, ideas have people.” This brings us back to Facebook. When the company went public in 2012 it had one small problem: it was not a business. There was no method for actually making money. A business cannot survive if it can’t make money, so it started allowing advertising. Because Facebook had tons of personal data, it could tailor advertising like never before. Companies could target only those most likely to want their products. Content could be pushed to a user based on Facebook knowing who that user was and what she was most likely to click on. 

Facebook developed algorithms to push information their users were most likely to click on so they could maximize those advertising dollars. As a result, if one started out as a normal, right-of-center Republican, then he would be sent a steady diet of progressively more right-wing content. Conversely, if one started out as a normal, left-of-center Democrat, she would be sent progressively more left-wing content. This process may not be masterminded by any puppet master like Goebbels, but it works the same way nonetheless. 

So, otherwise intelligent people start to believe that a Russian plot put Trump into the White House, and four years later a massive fraud kicked him out. President Biden has claimed that the retreat from Afghanistan was a success and our border with Mexico is closed. Maybe he is crazy, or maybe he is not. Maybe he knows that half of the people will now believe anything he says no matter how crazy, and that the other half will not believe him no matter what he says. This is the damage that social media has done. 

So, what to do about it? Most now agree that social media needs to be regulated; the problem is what economists call rent-seeking. Each side wants their particular propaganda to be seen, and want the other guy silenced. Or, at least they want the other guy’s propaganda labeled as such, while their propaganda is labeled “news.” 

The ultimate problem with Facebook is the same today as it was in 2012. It is the fundamental reason we have never invested in the platform: There is no ethical way to make Facebook an attractive business. It was supposed to be a place where we could communicate with relatives and friends who no longer live down the street; where I can know what one certain friend has for dinner every single night (you know who you are); where people who care can learn that my son, Charlie, made his school’s basketball team – Go Cavs! It should be taken back to what it was. 

The algorithms need to go. Pushed content needs to go. Everyone has a right to free speech, but there is no entitlement for one’s speech to go beyond his friends who happen to know him, love him, and realize that he is an idiot who has no clue what he is talking about. In other words, the online neighborhood should reflect the actual neighborhood. 

If we do that, Facebook’s stock price will plummet. They can still sell advertising, but it won’t be as tailored. It is a solution that is simple and would work, which makes the likelihood of Washington doing it very slim. So, we will simply need to arm ourselves. What we see online is not news, it is propaganda. It is a terrible weapon whether in the hands of an expert, or the inner workings of a computer algorithm. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director

~Blowing the Whistle

I’m sure anyone over the age of 30 can remember exactly where they were 20 years ago this Saturday. It is a day that will live forever in infamy. Several people I knew died that day. I have always tried to be careful when saying that; our readers know how I feel about hyperbole. I did not lose any loved ones – no close friends or relatives. However, one could not be in the investment management profession and not know people who had offices in the towers. I had been there for training on new manager research software just a few weeks before. Two of my close colleagues were right down the street as it was happening. It was very real to me. 

Everyone I have ever talked to about that day always has the same observation. It was a stunningly beautiful early fall day up and down the East Coast. There is something about that disconnect that sticks in our mind. I was running late that morning and rushed into my office. As I said good morning to one of my colleagues, she just looked up and said, “A plane has crashed into the World Trade Center.” We all started talking about what kind of plane it was. We assumed this must have been some private plane that got off course and lost control. 

Then it was confirmed that it was a passenger jet, and the mood changed. Shortly after the second plane hit and there was no doubt, this was an attack. All work stopped and everyone on our floor went to the big-screen TV in the executive conference room. We sat there watching in silence, except for my boss who had been in the towers just days before seeing an investment consulting firm on the 102nd floor (after all these years I can’t remember which tower). Everyone who was in that office when the plane hit, died. He kept saying, “I was just there.” 

We kept watching and then we heard about the Pentagon and Flight 93 that crashed in Pennsylvania. Conspiracy theories started blooming immediately. Finally, the word got out that all high-rise buildings in metropolitan areas must be evacuated. We walked down the stairs from the top floor, and a colleague and I went down the street to grab a sandwich and sit outside at Joe’s on Juniper. Everyone was eerily quiet. 

When I got home, my nephew who was living with me at the time was there. He was in the Army Reserves, and already wondering when he would get called up. I briefly considered enlisting, but he suggested that this would be over before I even got out of basic training, and then what? I thought he was probably right. He went on to serve two tours of duty in Afghanistan, two in Iraq, and a further two stateside. 

For the next several days at work my job was to call all the investment firms we traded with and confirm that they would be able to operate when the market opened once more. In other words, I was to find out who was still alive and who wasn’t. It remains the hardest thing I have ever done in my career. I dreaded every single phone call. Of course, as always seems true with human beings, where there was the most suffering, I also witnessed the greatest strength and resilience. Fred Alger Management had lost most of its management team, but former partners, including founder Fred Alger, came out of retirement to save the firm. 

My two colleagues were okay, they were able to rent a car and drive home to Atlanta. Another colleague from our Denver office was not able to rent a car, so he bought one and drove it back to Colorado. The market opened back up and continued the downward spiral that had started with the dot-com bubble bursting. Slowly life went on, but what had happened was real. 

That is my September 11, 2001 story, and I am sure you all have yours. Some of you may have been closer to it; to others it was just a scary news story. For a little while afterward it was actually wonderful. Our country came together as one nation. American flags were everywhere. That did not last long. 

Twenty years later our military has left Afghanistan. Reuters reports that before that exit, President Biden had a phone conversation with Ashraf Ghani, the then-President of Afghanistan. According to Reuters, Biden’s focus on the call was the Afghan government’s “perception” problem. “I need not tell you the perception around the world and in parts of Afghanistan, I believe, is that things are not going well in terms of the fight against the Taliban,” Biden said. “And there is a need, whether it is true or not, there is a need to project a different picture.” 

Peggy Noonan of The Wall Street Journal wrote about an excerpt from George Packer’s book, Our Man, about diplomat Richard Holbrooke. The excerpt describes a meeting between Holbrooke and then-Vice President Biden. In his diary Holbrooke described the meeting as “quite extraordinary.” Biden is reported to have dismissed Holbrooke’s arguments for protecting Afghan women’s rights as “bull –.” Biden went on to tell Holbrooke that he didn’t understand politics. 

This year our theme for this Perspective blog has been: If you care about people, then you have to care about the actual results of policy. In other words, reality must mean more to you than perception. What happened on 9/11 was no perception; people jumping from the burning towers were not a perception problem, nor were the people falling from our military planes as they took off from Afghanistan. 

This is not about Joe Biden, it is about our culture. We now care more about perception than we do about reality. Biden is simply a living example of what a lifetime of politics does to one’s soul. To some degree that has always been true for politicians, which is why they are so often compared to scum. Twenty years after the 9/11 attacks and 14 years after the introduction of the iPhone, our entire culture is consumed with perception. Personal branding – what image is she putting forth on social media – has become more important than who she actually is as a person. Recently someone I know commented that you never know what someone actually looks like anymore because all of the images on social media are doctored. Is it any wonder that we have record levels of depression and anxiety? Living a lie is hard. 

We have substituted opinion polls for substantive debate. Trump, and now Biden, wanted out of Afghanistan because polls say Americans are war-weary after 20 years of “Forever War.”  Where is the leadership? Americans are tired of hearing about our soldiers dying. They wanted the battles to end.  That does not mean they wanted to just abandon the Afghan people and create a power vacuum after 20 years of sacrifice. We have military bases in Germany and Japan. Does anyone think that World War II is a forever war? We have military bases in South Korea. One could argue that this is a forever war since the country is still split into North and South and North Korea is still an issue. Do Americans want to finally end the forever war in Korea? Have the pollsters bothered to ask? 

I was fortunate to go to a military high school in the 1980s. All of our military instructors were Vietnam veterans. From their perspective, one of the lessons from Vietnam was that we should never again allow politics to cause us to fight a war where we have to continuously fight for territory we had already fought for and won. I can only imagine what they are thinking watching the Afghanistan retreat. 

Biden wanted a photo op. He was going to get on stage somewhere this Saturday and say, “Look at me, I have ended the twenty-year war that started this day in 2001.” That was to be the perception, and all the Afghans had to do was hold off the Taliban until our TV cameras left, but they couldn’t do it. In reality, leaving Afghanistan doesn’t end the war, it escalates it. We just gave the enemy the one thing they really have not had in almost 20 years: Hope.  

A lot has changed since 9/11. Personally, I left Invesco and co-founded Iron Capital. I met my wife, got married, and had two wonderful children. My nephew I told you about? He is retired from the Army, married, and has four beautiful girls. I’m sure things are much different in your lives as well. One thing, however, has not changed: The Taliban controlled Afghanistan then, and our perception was that we were in a time of peace. This is once again the case. The reality of 9/11 was that we were wrong, and unfortunately, we are likely wrong once more.  At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director 

~The Reality of 9/11

“What we have here is a failure to communicate.”  – The Captain, “Cool Hand Luke” 

My daughter is about to turn 11 years old. Puberty has begun and she is stepping ever closer to middle school, which means our household is about to enter the unique hell that is coming of age for young women. To paraphrase a line from “Heart of Darkness:” “…the drama, the drama.” 

We are beginning to get glimpses of she said/she said, inferred meaning, and misinterpretation. Recently another parent informed me that my daughter had hurt his daughter’s feelings. He recounted what he heard my daughter had said as if it was the gospel truth. There was no asking if I was aware of any incident, or any benefit of the doubt, even though he has known my daughter for a several years now. Luckily for both of us he hit me with this at a very good time and I did not take it personally or react. I know this man’s daughter much better than I know him and felt the situation just needed defusing, so I just apologized. I spoke with my daughter, who was very upset. She said she had no recollection of any issues between them and claimed that she never said what she had been accused of saying. 

I have no way of knowing what really happened, but knowing both of these girls well, I strongly suspect this is a case of what my daughter said and what her friend heard were two different things. We have a simple miscommunication. That this would happen between two pre-teen girls is in no way surprising, but that it spread to two grown adults is indicative of what is wrong with our culture today: We have forgotten how to communicate. There are three drivers. 

First, we no longer believe in giving one the benefit of the doubt and fact-checking. It seemingly never dawned on the other father that perhaps this could have been a miscommunication. We unquestionably believe messages we want to believe without any consideration, then immediately attack anyone who questions. 

My wife and I have been watching “Ted Lasso” on Apple TV. It is a great show about an American football coach who goes to England to coach a soccer team. In a recent episode, one of the Nigerian players received a text from his father suggesting that the parent company of the team’s corporate sponsor was guilty of illegally dumping oil and paying off the Nigerian government to look the other way. Without any question or research of his own, he decided to protest by covering the sponsor’s name on his uniform. In the show’s defense, it is a 30-minute sit-com, but still I thought the situation is indicative of our culture today. His teammates ask what he is doing and with only his word, based on one text, they all decide to cover the sponsor’s name on their own jerseys. 

Now, perhaps the text was 100 percent accurate and the protest justified; that is not the point I’m making. The point is that those players have no idea whether any of what they are saying is true. The show ends with the player accusing the Nigerian government of corruption, and a reporter verifying that this is what the player meant. The headline in tomorrow’s paper will be “Nigerian Government Corrupt,” and that is based on a quote from a professional soccer player who received a text. 

In all likelihood the story will end up being true (we have not yet watched the next episode, so don’t tell us), but wouldn’t it be great if it turned out that was not the case? What a great lesson: Don’t believe everything you hear. Give people the benefit of the doubt, check the facts, and seek the truth. 

That is especially true when we focus on the second problem: hyperbole. Jesus taught us in Matthew 5:37, “But let your ‘yes’ be yes, and your ‘no,’ no. Anything beyond this comes from the evil one.” My family watched an interview with US Olympic gymnast Simon Biles this summer before she dropped out of the team competition. The reporter asked something to the effect of, “What is it like being the greatest of all time?” No pressure. I will freely admit that everything I know about gymnastics is from watching it once every four years; I have no idea is Simon Biles is really the greatest of all time. I do know there have been a lot of really good gymnasts, and that with any sport it is nearly impossible to compare one generation to another, because sports evolve. I also know that even if is true, it isn’t helpful. Obviously, it was not helpful to Simone. 

Unfortunately, “Happy Birthday to my perfectly suitable spouse” is not going to rack up the likes as fast as “Happy Birthday to the most beautiful women to ever walk the planet!” While buttering up one’s wife might be harmless, the habit of exaggerating everything is certainly not. When one makes a mountain out of every molehill, he becomes easy to dismiss. 

Why do so many people not believe in climate change? Because its biggest believers exaggerate to the point of being ridiculous. Steven Koonin, a physicist who served in the Obama administration, recently wrote a book on climate change entitled, “Unsettled.”  He argues not against current climate science, but that what the media and politicians say about the science has drifted so far out of touch with actual science as to be absurdly, demonstrably false.  

Of course he has been attacked for saying so, mostly by people who likely didn’t read what he wrote or who pick out one detail they believe he got wrong and blow that out of proportion to dismiss the entire message. Lost on them is the irony of the fact that their hyperbolic response only proves his point. 

When we exaggerate, we become far easier to dismiss and we lose our ability to respond correctly to real emergencies. We have an actual crisis going on in Afghanistan, but when everything is a “crisis,” how do we get anyone’s attention? 

Finally, for people to communicate with one another they must agree on the meaning of words. Last week a Wall Street Journal article described how the younger generations have changed the meanings of emojis. The smiley face is actually an insult. You can’t make this up. 

I won’t even get started on the use of emojis to communicate in the first place, but when the receiver can just decide that the emoji means what she thinks it means at the time, and evidently this is subject to change, how can any communication take place? While it is true that language evolves, this is a process that occurs over time. We cannot just decide that a word now has a different meaning, and if more than one meaning is possible then we should seek first to understand. Ask for clarification before assuming the worst and going on the attack. 

Which brings all the faults together: If one decides that a smiley face is an insult as opposed to an expression of joy, he can’t then just assume the sender has made the same illogical leap, and even so this certainly is too minor of a thing to get worked up about. 

To communicate properly we must give each other the benefit of the doubt and look for the facts. We need to speak plainly and avoid exaggerations, and we need to use our vocabulary in a way our audience understands. If we all work on these things individually, who knows, we might make the world a little less polarized. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA 
Managing Director 

~Failure to Communicate

According to all the experts, the United States has become a deeply divided nation. Perhaps I’m just a romantic but I believe the divides are not nearly as great as they seem. I say that in part because of you. We have been blessed to have a wonderful and very diverse set of clients with very different life experiences and perspectives. 

I recently had a wonderful conversation with one of those clients. He told me that he loved reading my Perspectives. He went on to explain that he usually disagrees with me, but he loved getting a glimpse of how I think. What I appreciated most about that conversation was the fact that two adults are able to disagree and still work together, and more than that, be friends. 

I am often accused of having very strong opinions, which I actually find humorous. While I will concede that I am often perceived that way, the truth is my opinions change often. I am extremely open to being persuaded. Most of the time when I get this feedback it is due to a symptom of our modern dialog, where opinions and facts get confused. I hold on loosely to my opinions but I do insist on being factual, and nine times out of ten when someone tells me they agree or disagree with me, it is after I have stated a fact, not an opinion. We have grown accustomed to accepting or dismissing facts based on our perspectives. 

One of the greatest compliments I ever received came from a co-worker and friend. He met my father at my wedding and told him that I was the most honest person he had ever met. I attribute that in part to going to a school with an honor code, where lying would get you expelled. The other part came from my father, who repeatedly told me that, “The truth hurts.” It would usually come after someone had said something mean that hurt my feelings and be accompanied by “only,” as in, “It only hurts if it’s true. Is it?” Most of the time it wasn’t, and he would utter the old adage, “Sticks and stones can break my bones, but words will never hurt me.” If it was true, then maybe I had work to do. 

When I was young my honesty was often too blunt. I needed to learn that given the choice of being right and being kind, I should choose kind. One can be loyal to facts without being rude. I sincerely try to do that and hope I am successful. 

In the last few Perspectives I have been bluntly honest about the current state of our nation’s universities, which have been taken over by the post-modernist idea that facts don’t really exist. That is neither an opinion or a perspective, it is simply a fact. It is my opinion and perspective that this is extremely dangerous and is a root cause of our seeming division, which brings us back to our theme for this year: If you care about people, then you have to care about the results of policies. This requires an acceptance of facts, even if we don’t like them. 

Both political parties have abused the economic realities of taxation. I wrote about this in a 2010 issue of The Quarterly Report, “A Taxing Debate,” which I encourage you to read. The Biden administration has proposed raising the capital gains tax to more than 40 percent. They have also proposed taxing unrealized gains. 

The first question we get is, what impact will this have on the stock market? The answer is, not much in the long term. The news of it will likely scare people, but the reality of the market is that the vast majority of stocks are bought and sold inside tax shelters. That is simply a fact; the market is dominated by institutional endowments, foundations, and retirement plans. Even individual accounts are largely in retirement vehicles that do not pay capital gains tax. 

For those who are subject to capital gains tax, it is largely a voluntary tax. It occurs only when one decides to sell an asset and actually pocket the money.  If the government makes the cost of doing so outrageous, then history tells us people simply won’t do it. Tax revenues from capital gains will decrease. This isn’t an opinion, it is an empirical fact; which is why they now propose taxing unrealized gains. 

That thought is frightening. For most people, their largest asset is their home. So, what happens when one’s home is appraised for twice what she paid for it? Under the current rules, nothing, because this isn’t income. The house being worth more does not put money in her pocket. However, if we now must pay up to 40 percent tax on that unrealized gain, where is that money actually going to come from? Most people don’t have it. 

The examples used by the proponents of such policy are people like Jeff Bezos, CEO of Amazon, but the Bezoses of the world are what statisticians call outliers. The fact is, all tax increases ultimately hit the middle class, because the Jeff Bezoses of the world have teams of lawyers and accountants playing the game. History tells us the rich find loopholes or pay for them in the form of political contributions. Tax increases like these ultimately hit the middle class because it is only the middle class that has the combination of enough money to tax but not enough to play the game and avoid taxation. That is a fact, whether one wants it to be or not. 

We can have different perspectives on what the tax system should look like. However, we need to accept the facts of what history tells us works versus what doesn’t work. Raising the capital gains tax is one of the least effective ways to raise revenue, and changing the rules to include unrealized gains is going to cause a great deal of unintended pain to middle class Americans. 

Regardless of party or perspective, we should all agree that the tax system’s goal is to fund the government in the fairest and most efficient way possible. We may differ on what the government should or shouldn’t do, and therefore how much funding is required, but the actual collection of taxes should be based on what is fair and effective. Fairness may be in the eye of the beholder, but effectiveness is a cold hard fact. Raising the capital gains tax is not effective, and that is not my perspective, it is simply a fact. 

Warm regards,

Chuck Osborne, CFA 
Managing Director

~These Are Taxing Times