Will Explosive Taxation Derail the Recovery?

Original Artwork by Joshua M Brown; Sharpie on Back of Sell Tcket

Clearly, there are some areas of the economy that are showing signs of a recovery.  What this may mean to stocks, bonds, real estate etc is not the subject of this post.

Instead, let’s take a moment to ponder the new emerging headwind that could throw a serious monkey wrench in our recovery hopes for the economy itself: Taxes.

Doug Kass had this to say in his morning missive on the subject:

It is only a matter of time before policy makers address the financing of this accumulated debt and the great reflation experiment of 2009″ by raising taxes significantly. Over the weekend, we have already begun to witness the start of what is likely to become an avalanche of changing tax policy.

Kass goes on to cite the fact that this weekend, New York City raised it’s sales tax to 8.875%, the first hike in 35 years.  This at a time when retailers can’t get people in the door to buy if their lives depended on it.  The biggest shopping thoroughfare on the planet, Fifth Avenue, is currently running at 15% occupancy, the NYC retail equivalent of the End of Days.

He also cites the fact that the state of NJ is is imposing an additional wine and liquor tax that he feels will surely be passed on to the consumer, as well as Oakland, California’s decision to begin taxing marijuana sales. 

Kass’s conclusion should give pause to the V-Shaped Recovery crowd: 

This is just the start of a nascent and broad trend toward much higher taxes, a growth-impeding and P/E-diminishing secular development.

These are merely anecdotal examples of a trend that shows no sign of abating.  Municipal and federal governments will be faced with no choice but to levy additional and raise existing taxes to cover their shortfalls on essential services as well as their shiny new social programs. 

This will be counterproductive for the recovery, to put it mildly.

Sources:

The Edge: Back to the Future (Realmoney Silver $ub req)