Ray Dalio: The Biden Tax and Spend Plan & The Big Cycle Swing (May 3, 2021)

Ray Dalio has posted his latest installment reflecting where current events fall into patterns that have occurred in the past. The consistent theme of this series is that, by looking at past history, we can get a rough idea of what the future holds. The current article, posted on linked in, begins as follows:

President Biden’s proposed $1.8 trillion American Families Plan on top of his $2.3 trillion American Jobs Plan and his $1.9 trillion American Rescue Plan together make the biggest increase in government spending since the big Roosevelt increases. Like the Roosevelt New Deal, the Biden plan is a bold move to radically reform and redistribute wealth and opportunities and to stimulate the economy.

The Big Picture: Where We Are in teh Big Left-Right Cycle

What’s happening is classic and cyclical—i.e., we are seeing the left-right pendulum that has big swings back and forth between 1) more government, more redistributions of wealth and income, and less fiscal and monetary discipline, and 2) less government and fewer redistributions of wealth and income swing sharply to policies of type 1) (left) from policies of type 2) (right) for logical reasons that have timelessly and universally caused these swings. To put where we are in the cycle in perspective by looking at where we have come from over the last 100 years, that cycle has transpired as follows

Key summaries contained in the post are as follows:

  • “Absent extraordinary efforts to evade the tax, the Biden tax package (as proposed) would probably be the largest single tax increase on the wealthy since FDR. We did an exercise of modeling the taxes people would face over the course of their lifetimes. While there is no precision to the exercise, we roughly estimate that Biden’s plan, as proposed, would represent a roughly 4-6% tax rate increase or a 10% or so decline in after-tax lifetime earnings (including regular income and returns on assets). That is represented in the chart we showed earlier.
  • Still, those taxed most heavily, the ultra-wealthy, will face lower tax rates than they did at the height of tax burdens in the 1960s and 1970s. Since that period, the ultra-rich have had their effective tax rates decline over time as the average American has seen their taxes stay flat or even slightly rise. Biden is reversing a portion of that decline.
  • Importantly, even as overall tax rates have been falling on the top-earning households through time, their overall share of taxes (as a percent of income taxes the federal government receives from households) has increased. This is largely a function of increased concentration of wealth and income at the top. The chart below attributes the income taxes the government receives by the top 10%, the bottom 90%, and corporate income taxes.

To see the full article, click Ray Dalio: The Biden Tax and Spend Plan & The Big Cycle Swing (May 3, 2021).

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

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