It’s the Uncertainty Stupid, by Jon Lobell

Back in the day, I attended camp with a kid named Jon Lobell. Like myself, he’s a product of the mean streets of Mahopac, N.Y. Hell, he’s actually responsible for teaching me the lyrics to this song when we were, oh, 11 or 12.

Anyhow, Jon and I have resumed our friendship via Facebook. Here, he takes on the notion that taxes impact an investor’s mindset …

O.K., I hate to shamelessly bastardize Bill Clinton’s famous campaign slogan, but somehow it seems apropos to the point of this commentary. Last week, Warren Buffet lent credibility to the notion that taxes have no impact on an investor’s decision whether or not to invest. “People invest to make money, and potential taxes have never scared them off,” he wrote in an August 14 New York Times op-ed piece (“Stop Coddling the Super-Rich”). This notion flies in the face of Reaganomics and the last 30 years of Republican economic doctrine, and it could not be more true.

Why is this the case? It is very simple, really. It is the uncertainty in return on investment (ROI) more than anything else that is the chief deterrent to investment. Think about it. If you have $1 to invest, and you can get a guaranteed 30 percent ROI, you’ll do it regardless of how much tax you have to pay on the gain. Even if the tax rate was ridiculously high, say 50 percent. Wouldn’t you rather make a guaranteed 15 cents (50 percent of the 30 cents gain) than zero cents? That’s an investment I know I would make any day. On the other hand, if you have, say, only a 50 percent chance of earning 30 cents, you are much less likely to make the investment, regardless of what the tax rate is. Personally, 50/50 odds are too great a risk for me to stomach, and I would choose not to invest in that case even if the tax rate was quite low, say 10 percent. So, taxes really have nothing to do with it.

There is no such thing as a safe bet when it comes to investing. Everyone knows that. But taxes are the least of the investor’s worries. Based on my experience in the corporate world, I will go so far as to say they don’t play into investment decisions at all. Warren Buffet, and I’m fairly certain all successful investors, understand that. The only ones who seem not to get it are Republican politicians.

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