Wednesday Briefs – 9 June 2021

THIS WEEK: Billionaire Tax Rates; Who “Misses” Trump; Post Post-Modern Art.


ProPublica published a report yesterday that revealed the federal taxes paid by some billionaires in recent years. Income taxes apply to several categories of income but primarily to W2 wages, interest and dividends, and realized capital gains (gains on assets that were sold in the tax year). For many of the very wealthy who made the bulk of their fortunes with stocks and stock options, their taxable income is dwarfed by the wealth gains that they achieved from rising stock prices. Their salaries tend to be minimal, most of their companies do not pay dividends, and they seldom realize their gains by selling stock.

ProPublica calculated what it calls a “true tax rate” paid by some billionaires. It divided the taxes that they paid by their total wealth gain over the years. Because stocks in their sectors have been soaring, this ratio or “true tax rate” ends up being minuscule. For Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk, it was 0.1%, 0.98%, 1.3% and 3.27% respectively. Most taxpayers pay 20%, 30% or more of their incomes in federal tax because most taxpayers’ incomes come from W2 wages, interest and dividends.

ProPublica’s report has the merit of highlighting the extreme wealth that can be accumulated essentially tax-free. Buffett once had famously said that his favorite holding period on an investment is “forever”, which implies no realized capital gains and therefore no income tax paid on such an investment (except for dividends). Buffett has also explained the benefits of compounding returns tax-free.

But ProPublica’s approach also gives pause because it argues implicitly that unrealized capital gains (gains from assets not yet sold) should be taxed. While billionaires could handle such a burden, what about the middle class family whose house rises in value year after year? Should they pay capital gains tax on the unrealized appreciation of their home’s value? Clearly not, as most would not be able to make such cash payments. Further, what happens if an asset loses value in a given year, say if the stock market declines? Do taxpayers get a refund or credit for unrealized losses?

Imposing taxes on unrealized gains could significantly alter the stock market and would arguably depress stock prices. This would impact not only the very wealthy but anyone with a pension or retirement account.


As we predicted some months ago, few will have missed Donald Trump as much as the media has, whether they hate him or love him. Starting in 2016, Trump’s omnipresence on screen and on Twitter provided a big boost to the revenues of media companies across the political spectrum.

As an example, the stock of the New York Times Company (NYT) had been languishing in the teens for years but it started to climb from $11 on the eve of the 2016 election to a fresh all-time high of $58 this past January, a quintupling in four years. The last time it had been over $50 was in October 2002, nearly two decades ago, before the internet eroded its ad-based revenue model. Its return to life has been driven by a jump in digital subscriptions, ostensibly motivated by concerns over Trump and over fake media. Other news companies and TV channels have also increased their revenues and profits. And non-profit news platforms like ProPublica seem to have benefited from better fund raising throughout the same period.

But now Trump is out of the White House and off of Facebook and Twitter. On cue, the New York Times’ stock has traded down to $42 as of yesterday. What Peter Thiel called years ago the “bull market for news” appears to be over for now. The media does better in times of crisis when people are looking for more understanding and analysis. CNN established its news supremacy during the first Gulf War in 1991, a year in which founder Ted Turner was Time’s Man of the Year.

That was a different CNN, made more of news and soft ball interviews and less of wall to wall editorial content. Today, cable news channels and media companies have figured out that polarization is a good moneymaker because it gives a sense of permanent crisis and drives viewership and subscriptions. Covering Trump 24/7 has done wonders for MSNBC just as covering Obama had helped Fox News and others.

We need a new objective media, with fact-based stories and data-driven analyses. The question remains: with reduced ad revenues and without polarization to drive subscriptions, where would revenues come from?

READ MORE >>> The Bull Market in News is Over.


If NFTs (non-fungible tokens) are one 2021 novelty enabled by lax monetary conditions (easy money), what can be said of the new invisible sculpture from Italian artist Salvatore Garau that reportedly auctioned for $18,300? Garau explains that the non-piece is a “vacuum… that has energy and is condensed and transformed into particles, that is, into us… [like] a God we’ve never seen.”

People who engage in relative valuations may express surprise at the auction’s modest result. On a comparative basis, a vacuum is far more valuable and should command a higher price than many of the more tangible works of art being produced today.

Broadly speaking, some headlines claim that art has been the best investment class of all: better than stocks, bonds, real estate and commodities. This may be true on a nominal basis and at rare points in time when the markets are very frothy. But realizing gains in art is complicated and expensive. Market liquidity can vanish and commission costs are high. Comparisons must be made after commissions and assuming average liquidity.

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