Scheduled release date: Q3: 2011
The thing that ultimately matters most in investing and managing financial assets is how real purchasing power increases or decreases. Real purchasing power is reflected in real returns after taxes and inflation effects.
But, the issues are not obvious. Under US tax laws, nominal investment income and capital gains are taxed. There is, in fact, a pernicious interaction among nominal investment income and taxes in financial income (interest and dividends) and inflation and nominal market returns.
This interaction causes real returns after tax and the value of financial assets to be far lower than most investors realize. This includes equities and fixed rate securities such as government and corporate bonds.
The result is that real after tax returns and changes in the real purchasing power of assets over time are much lower than investors and individuals realize.
Taxes, Inflation and Financial Assets is the only clear, understandable and useful explanation of how under U.S. tax laws, there is a
Taxes, Inflation and Financial Assets what happened to real after tax returns from financial assets during two very different episodes. The comparison dramatically illustrate the problem.
Episode 1 took place during the 10 year period from 1973 to 1982. Core inflation was triggered by the Arab Oil Embargo, which dramatically drove producer prices upward. These costs were quickly passed on, and core inflation set in. By 1982, core inflation in the US reached 14 percent, more in some sectors of the US economy. This was the highest level of inflation since WW II. Inflation drove interest rates through the roof prime rate reached 24 percent. Income taxes also were relatively high, and market returns lagged all of these factors. Market returns reflected the fact that the US economy dropped into a period of stagflation -- a very painful combination of slow growth and very high inflation.
Episode 2 took place during the 10 year period from 1983 to 1992. Immediately upon becoming Chairman of the Federal Reserve, Paul Volker imposed very tight money policies (i.e, restricting credit in the banking system and keeping interest rates high). These policies brought core inflation under control and gradually declined during this decade. At the same Reagan cut taxes across the board, including taxes on investment income and capital gains. Deficit financing was used to jump start the US economy. These policies triggered the longest bull market in US history. The market ultimately broke in 2001 when the internet bubble burst.
Taxes, Inflation and Financial Assets is based on a working paper originally written in 1993 on the occasion of debate over the Clinton Tax Act of 1993. This working paper was distributed to all members of Congress, the Senate, Board of Governors of the Federal Reserve, the White House, presidents of all money center banks and Wall Street firms, plus leading economists around the US, The analysis was also picked up by the Wall Street Journal in a feature article in the Money and Banking section in August, 1993.
Taxes, Inflation and Financial Assets has been updated to include key issues and common threads in 2011, a time when both interest rates and taxes are at historic lows and when returns from public markets have been variable, to say the least.
Through high impact graphs and exhibits, the author shows how lessons contained in Taxes, Inflation and Financial Assets are timeless.
Messages in timeless and should be clearly understood by any person who is accountable for creating, protecting and capturing real purchasing power from financial assets.
Taxes, Inflation and Financial Assets is a companion to the author’s other capstone publications, The Language of Business, Total Business Strategy, Personal Choice and Realities of Life and My Dutch Uncle.
The Author
John Van Slyke Jr., has a distinguished record of achievement spanning 40 years in the real world in more than 30 industries. He also is a graduate (Baker Scholar) and former member of the faculty in the MBA program at Harvard Business School. He received his BA Degree from Beloit College in history and economics. He also served on active duty as an officer in the US Navy during the Vietnam War.
But, the issues are not obvious. Under US tax laws, nominal investment income and capital gains are taxed. There is, in fact, a pernicious interaction among nominal investment income and taxes in financial income (interest and dividends) and inflation and nominal market returns.
This interaction causes real returns after tax and the value of financial assets to be far lower than most investors realize. This includes equities and fixed rate securities such as government and corporate bonds.
The result is that real after tax returns and changes in the real purchasing power of assets over time are much lower than investors and individuals realize.
Taxes, Inflation and Financial Assets is the only clear, understandable and useful explanation of how under U.S. tax laws, there is a
Taxes, Inflation and Financial Assets what happened to real after tax returns from financial assets during two very different episodes. The comparison dramatically illustrate the problem.
Episode 1 took place during the 10 year period from 1973 to 1982. Core inflation was triggered by the Arab Oil Embargo, which dramatically drove producer prices upward. These costs were quickly passed on, and core inflation set in. By 1982, core inflation in the US reached 14 percent, more in some sectors of the US economy. This was the highest level of inflation since WW II. Inflation drove interest rates through the roof prime rate reached 24 percent. Income taxes also were relatively high, and market returns lagged all of these factors. Market returns reflected the fact that the US economy dropped into a period of stagflation -- a very painful combination of slow growth and very high inflation.
Episode 2 took place during the 10 year period from 1983 to 1992. Immediately upon becoming Chairman of the Federal Reserve, Paul Volker imposed very tight money policies (i.e, restricting credit in the banking system and keeping interest rates high). These policies brought core inflation under control and gradually declined during this decade. At the same Reagan cut taxes across the board, including taxes on investment income and capital gains. Deficit financing was used to jump start the US economy. These policies triggered the longest bull market in US history. The market ultimately broke in 2001 when the internet bubble burst.
Taxes, Inflation and Financial Assets is based on a working paper originally written in 1993 on the occasion of debate over the Clinton Tax Act of 1993. This working paper was distributed to all members of Congress, the Senate, Board of Governors of the Federal Reserve, the White House, presidents of all money center banks and Wall Street firms, plus leading economists around the US, The analysis was also picked up by the Wall Street Journal in a feature article in the Money and Banking section in August, 1993.
Taxes, Inflation and Financial Assets has been updated to include key issues and common threads in 2011, a time when both interest rates and taxes are at historic lows and when returns from public markets have been variable, to say the least.
Through high impact graphs and exhibits, the author shows how lessons contained in Taxes, Inflation and Financial Assets are timeless.
Messages in timeless and should be clearly understood by any person who is accountable for creating, protecting and capturing real purchasing power from financial assets.
Taxes, Inflation and Financial Assets is a companion to the author’s other capstone publications, The Language of Business, Total Business Strategy, Personal Choice and Realities of Life and My Dutch Uncle.
The Author
John Van Slyke Jr., has a distinguished record of achievement spanning 40 years in the real world in more than 30 industries. He also is a graduate (Baker Scholar) and former member of the faculty in the MBA program at Harvard Business School. He received his BA Degree from Beloit College in history and economics. He also served on active duty as an officer in the US Navy during the Vietnam War.