Look to the extremes to understand. In the market and in life…

If we were to take all of everyone’s money, that is a 100% tax rate, there would be minimal financial incentive for people to buy stuff and do things. There would be maximum government funding for institutions to benefit society.

If we were to take no money from anyone, that is a 0% tax rate, there would be maximum financial incentive for people to buy stuff and do things. There would be minimum government funding for institutions to benefit society.

That is easy. Now let’s add a degree of difficulty. Where do you set the rate between all or nothing?

Do you set up a system with a 50% tax rate? That is in the middle. Most of us do not want to see half of our money taxed away, if it were, our incentive to work harder would be taken away as well.

So where do you set the taxes? How much of your money do you want to give from each paycheck? That’s the great debate. I am not a political person, never have been and I sure don’t plan to be. I have never donated as much as a single dollar to any political party or candidate. I am not a member of any political party, never have been. I look at each issue on its own merits. I learn learn from the world, not what politicians say about the world…

Now that my nonpolitical credentials have been established for you. I also want you to know that this is not a political blog but the decisions politicians make will affect the market and the market is what we are here to learn from. So I am not going to ignore the politicians, they are a big part of our lives. I will simply point out what they say and do, as it affects our markets and our world.

Today I’m looking at taxes because I see an opportunity to observe and learn from an extreme in the news. As an exercise you can decide now, what you think the outcome will be and we will find out the reality from what the market tells us over time, as events unfold.

I see in the headlines that there are proposals for a 75% tax rate. Give that some thought… You make a hundred bucks and they take seventy five.

If you were taxed at that rate, What would you do? What do you think other people would do?

Look to your world to learn. Look to France. The French president plans to impose a 75% tax on people making more than a million. As a result, the rich are leaving France and taking their money with them. Who will be left to buy what the French people have to sell? Will this help their businesses? How about the French economy? Maybe 75% is like 100%, a bit too much.

Don’t listen to what the political marketers tell you about this. We know they will benefit. Watch the French economy. Over time that will tell us if this is a good idea by how much this new tax rate affects business, the people and the market.

As the tax rate debate continues in the US, between what I like to call the “Government Team”, that is the Democrats and the “Business Team” that is the Republicans, you can watch their comments and watch the extreme case across the ocean to see what happens. As the “teams” present their ideas to you, think about the extremes and how it would be best to handle the middle where most of us live.

Don’t listen to me and definitely don’t listen to what some politician says. Watch the reality play out in the market. Learn from reality, not what someone tells you reality is.

Be sure to look where they don’t want you to look. Look for the data they don’t mention…

In this case I am watching England. As France increases their regulation and taxes to chase away the rich. England is making it known that the rich are welcome there. Their money is welcome there too. Their rate may not be 0% but it is not 75% either…

What do we expect to learn from this one? The middle class needs rich people to buy their stuff. Poor people can’t afford too much stuff. The rich can afford the stuff but that doesn’t matter when they are gone. I am betting this will not go well for French economy over time. Lets hope France figures this out. For the sake of their middle class…

So who will win? France where they are taxing the rich so much that they are leaving or England where they are welcoming the rich? Welcoming them as a plan for economic stimulus. I am betting on England…

How will we know? As always we will watch the markets for our answers. The French and English economies, their stocks and their stock markets. The markets will tell us the secrets we want to know…