How High Can Taxes Really Go? What Every Investor Needs to Know Now

The Bipartisan Tax Consensus Nobody Is Talking About

I watch how things get built up in the media. And what I am seeing right now should concern every investor and every American who works hard for their money. Parties that are supposed to be at each other’s throats are quietly coming together on one thing: higher taxes. Nobel Prize winners like Paul Krugman and Joseph Stiglitz just penned a letter supporting California’s wealth tax policy, a billionaire tax at 5%. Am I surprised? Not even slightly.

But here is what bothers me most about that letter. I read it. There is no substance in it. No real numbers. No explanation of how this tax would actually work in the real world. It is intellectual cover for a policy that falls apart the moment you examine it.

Why the Wealth Tax Is Fundamentally Broken

Let me explain this as clearly as I can, because the media is not going to do it for you.

Someone starts a company. They raise $50 million and build a business. Wall Street slaps a $1 billion valuation on it. How does $50 million become $1 billion? Simple. That company is worth what somebody else is willing to pay for it. The valuation is not cash. It is a number on a screen.

Think about sports franchises. Apollo is reportedly taking a stake in the New York Yankees. Does anyone actually know what the Yankees make? Does anyone know the real revenue multiples driving that valuation? Of course not. These franchises are given a valuation and it is just accepted. Banks let owners borrow against it. The value never seems to go down. You never have to show the underlying numbers. It just keeps climbing.

Wealth works the same way. Elon Musk is the world’s first potential trillionaire because of his positions in Tesla and SpaceX. But there is not enough cash in existence to actually buy him out of those positions at current valuations. That is not real liquidity.

Here is what actually happens when valuations collapse:

• Wealth is converted into cash all at once
• Everyone rushes for the exits simultaneously
• There is not enough cash to meet demand
• The value of everything drops fast

That is a market crash. That is wealth evaporating. And that is exactly why taxing unrealized gains and paper valuations as though they were cash in hand is economic nonsense.

The VAT Tax: The Hidden Threat Nobody Is Watching

Now here is where I want investors to pay very close attention, because a more serious threat may be coming down the pike.

A respected peer of mine, Peter Tunis, chairman emeritus at Lynx Investment Management out of DC, a guy who is not a progressive by any stretch, is calling for a VAT tax, a Value Added Tax. And I have been saying this is coming for a while.

Why will politicians love the VAT tax? Because you do not see it. You feel it, but you never see it as a line item. It is embedded in the price of everything you buy. Politicians throughout history have discovered that taxes people cannot easily identify are taxes people will eventually stop fighting. Human beings wear down. The outrage fades. The tax stays.

This is a convergence worth watching:

• Progressive economists pushing wealth taxes on paper gains
• Center-right thinkers floating VAT taxes as a revenue solution
• A federal deficit that is not going anywhere
• Both parties needing revenue and looking for political cover

What This Means for Your Portfolio and Planning

If you are an investor or business owner, the tax environment of the next decade is going to look very different from anything we have seen in recent memory. The policy debate is no longer about whether taxes go up. It is about which taxes, on whom, and how fast.

Key things to be watching right now:

• Proposals targeting unrealized gains and how they might affect your long-term holdings
• VAT discussions as a revenue mechanism at the federal level
• Estate and succession planning in the context of rising tax pressure
• Any state-level wealth tax proposals that could signal what is coming federally

The wealth tax is bad economics, and I believe it will eventually be recognized as such. But the VAT is sneakier, more durable, and far more politically viable. That is the one I am watching closely.