The Law of Unintended Consequences

It is true that our actions sometimes have outcomes that we are not able to foresee. Our actions may have had the best intentions, but as another old saying goes, “The road to hell is paved with good intentions.”Current federal tax policies and regulations are certainly having unintended consequences, and wreaking havoc on the jobs market and the economy.

It is important that readers realize that this piece is not intended to be political speech that favors one camp over another. When managing money, we have to look at the facts that are presented in front of us and develop an analysis based off of those facts. We wanted to take real life examples of businesses and high net worth individuals responding to high tax, high regulation policies.

The fact is that the current administration has pushed for higher taxes on businesses, middle class Americans without health insurance (The Huffington Post reports that nearly 6 million Americans will face a new tax penalty under the health care legislation) and high net worth individuals all while pushing for more costly regulation, i.e. the Affordable Care Act and regulations from the EPA.

The Telegraph reports that in fear of income taxes in France spiking up to 75%, the mega-wealthy have fled the country. According to the head of Sotheby’s Realty in France, “…a large number of wealthy French families are leaving the country as a direct result of the proposals of the new government.” The elite French have elected to pack up and move to Switzerland, which is bad news for the French government. 75% on 0€ is less than 30% on billions of €, a theory many government types have failed to understand.

In the US, class warfare rhetoric has turned us in to a nation of percentages. The “1%,” the “99%,” the “47%,” all due to this thought that the wealthy need to pay their fair share. The fact remains that the top 10% of income earners in the United States pay far more than the top 10% in other countries, as Stephen Moore has recently shown us.

Las Vegas resort tycoon Steve Wynn recently said in an interview that he is holding off on a project that could create 10,000 regular jobs and another 25,000 indirect jobs because he is “…afraid of the President. I have no idea what goofy idea, what crazy, anti-business program this administration will come up…And I have to tell you that every business guy I know in the country is frightened of Barack Obama and the way he thinks.” Wynn also commented on the fact that he donated 120% of his salary to charities last year, as he does most years, and that through class warfare rhetoric he feels the current administration has made business owners like himself appear evil and greedy.

NewsBusters recently came in to possession of a letter written by Westgate Resorts CEO David Siegel (verified by Gawker) to his employees in which he stated that he was tired of only being rewarded 50% for his hard work, and that if his employees were to take a 50% paycheck deduction that they would be rightfully angry. He informed his employees that if we continue to pursue these fiscal policies that he would have no problem closing up shop and retiring, which would put all of his employees out of work.

Darden Restaurants, which own Olive Garden and Red Lobster, have started hiring workers to only 28 hour weeks in order to lower health care costs. The Affordable Care Act states that companies with employees working more than 30 hours a week must be provided health insurance or face fines of up to $3,000 per employee.

Whether or not you agree with their response, business owners are feeling the squeeze from the government when it comes to taxes and regulations. These 3 examples show business owners who have been unable to hire, or even willing to lay off workers, as a direct result of federal policies. Until we as a nation are able to begin rewarding success instead of vilifying and demonizing the successful, our economy, workforce and GDP will continue to suffer.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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