Daily Commentary

MarketMinder’s View: This long-ish piece revolves around politics, so please note MarketMinder is nonpartisan, preferring no party or politician. Our sole focus is on the potential legislation’s market ramifications. Last week, the Netherlands’ lower house passed an annual 36% capital gains tax (CGT) on any increase in the value of Dutch investors’ stock, bond or crypto investments—a tax on unrealized gains. The article highlights the broadly negative reaction that followed, including criticism from social media financial commentators and opposition politicians, as well as a comprehensive discussion about wealth taxes under consideration worldwide. Our interest isn’t in whether governments should or shouldn’t pass wealth levies—a topic laden with sociological implications. But taxing unrealized gains likely isn’t a net benefit. For instance, it risks disincentivizing long-term investment in the Netherlands. It also risks forcing people to sell stocks and other assets to pay their tax bills, which can have downstream implications. And on the revenue side, it risks making receipts volatile and unpredictable, as investors would be able to carry forward unrealized losses to offset future gains, which could put public finances in a tight spot during and after bear markets—typically when governments also want to pursue “stimulus” during a recession. Norway’s experience also shows wealth taxes tend to generate little revenue as they inspire people to vote with their feet. Yet we see a few things to consider. One, the bill still requires Senate approval, and lawmakers there may be more circumspect after seeing the backlash. Two, if finalized, this tax would take effect from 2028, giving stocks plenty of time to digest the probable effects here. Three, as noted herein, an online petition has the level of backing needed to force Dutch Members of Parliament to formally consider the petition, which could lead to minor (or major) changes. And if history serves as a guide, Dutch pols may change their tune. Following pushback, Dutch officials have U-turned on policy pre-ratification several times after voters made their voices heard via referendum (e.g., in response to 2017’s Intelligence and Security Services Act). This tax could be halted or materially adjusted before 2028, so while we will keep a close eye on this, it is worth noting nothing here is a given or sneaking up on stocks. Lastly, don’t overrate this as a risk for Dutch or global markets. Dutch stocks are 1.3% of the MSCI World Index (per FactSet) and owned by investors globally, mitigating the influence of a local tax measure on returns (and Dutch folks invest globally, too). This strikes us more as a personal finance issue.

MarketMinder’s View: Some politics here, so please note MarketMinder is nonpartisan, preferring no party nor politician. We are here for potential market and/or economic takeaways only. With March 3’s Spring Statement looming, this piece weighs whether the UK economy is in as good shape as the data (e.g., a record haul of tax receipts and improving retail sales) suggest. Despite a spate of good news, the article casts the developments negatively. For instance, that January influx of tax revenues is painting an artificially positive picture of the government’s balance sheet. “Looking again at January’s tax receipts, it’s clear that much of the extra money came from capital gains tax (CGT) payments, and these were generated by individuals offloading assets to avoid tax hikes in the future. That means the jump in CGT revenue was likely to have been based on one-off property and financial asset sales, and so gives little indication of the longer-term prospects for tax receipts.” Sure, some of those tax revenues may be a one-off, but that isn’t the only factor contributing to January’s surplus. The Office for National Statistics also noted interest payments were down from a year earlier, due in part to cooling inflation (which meant payments tied to bonds linked to the Retail Price Index were lower, too). Moreover, all the handwringing over the state of government finances overlooks solid growth in the UK’s private sector, which comprises the lion’s share of UK GDP. This widespread negativity in the face of positive data suggests sentiment toward the UK remains low, making bullish positive surprise easier. For more, please see today’s commentary, “A Gloomy Greeting for Better-Than-Feared UK Data.”

MarketMinder’s View: The titular “analysis” here is the Congressional Budget Office’s (CBO’s) latest forecasts for the Old-Age, Survivors, and Disability Insurance (OASDI) fund, one of two pools the Social Security Administration uses to disburse benefits. As the title suggests, these new estimates bring the fund’s projected depletion date up to 2032 from 2033 in last year’s forecast, citing hot inflation’s raising Social Security’s cost-of-living adjustments. While that may sound worrisome, especially for those who receive or are planning to receive their Social Security benefits in the near future, we suggest taking a deep breath to recognize what this is: the latest in a long line of ever-shifting long-term OASDI projections. Consider: In 2021, the CBO predicted funds would dry up in 2033. The next year, they pushed it back to 2034. The next year, 2035. Then back to 2034 the next. And last year, they moved it up within 2034. This latest update is par for the course. These forecasts are also highly imprecise, dealing in straight line math and assuming today’s conditions are concrete. No one knows today how inflation, economic growth, wage growth, tax rates or government policy will develop over the next 5 to 10 years. Consider, too, Congress has a history of adapting to keep Social Security benefits flowing (often acting at the last minute), but the CBO’s forecast fails to account for this. “Depletion” is also a bit of a misnomer here—the CBO’s date represents when Social Security will lose its ability to pay benefits in full. Incoming revenue is still forecast to cover 72% of scheduled benefits, and Congress knows making retirees take a pay cut is an express ticket to getting voted out. None of this is reason to panic, in our view—this is a reheated false fear capturing headlines yet again.