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Tag: history

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As major investment firms promote their virtuous investments that maximize societal value, while seemingly scrapping their goal of maximizing shareholder value…one must ask:  Is woke capital truly committed and capable of delivering on its heroic quest, or is it simply pandering to social progressivism for profits and PR? 

 

We live in a day where the undercurrent of mistrust towards institutions is at an all-time high.  Whether it is Wall Street, the Government, or Hollywood…everyone has an agenda, and pointing fingers seem to be the solution for a problem as vague as the umbrella of solutions offered.  Elevated as the root cause that threatens all of humanity’s prosperity…man created climate change…and the fuel propelling us off this cliff of human apocalypse…fossil fuels?!? 

 

Poverty & Human Development 

It is hard to argue, since the dawn of humanity, that no other energy source has plucked humanity from abject poverty to the precipice of human flourishing, development, and into enlightenment as fossils fuels have.  It has afforded our society the luxury to focus on values that are non-survival related and have enabled more progressive focus on values of equality, social justice, and environmental stewardship.  But tell that to almost half of the world that lacks such luxuries and would kill to enjoy a fraction of America’s energy abundance, and the 1st world values that come with them.   

Countries like Indonesia are moving away from clean energy projects. Credit: Getty Images

 

Rising energy consumption is tightly correlated with rising income and living standards, historically lifting humanity into the modern world.  Access to cheaper forms of energy is the necessary steppingstone for proper human development, and not a process that should be skipped with more modern expensive options.  

 

Humanity has flourished over the past two centuries with the average life expectancy increasing from 30 to 70 years, due to the use of machines (technology) coupled with the harnessing of energy (mainly fossil fuels) with these technologies.  But linking historical human development with environmental risk requires a more targeted approach.  Humans suffer from far more immediate local environmental risks, such as indoor air pollution, water pollution and water-borne illnesses, and malnourishment than more long term global environmental risks, such as climate change, ozone depletion, and ocean acidification. 

 

Over the decades, investment into business, specifically energy and energy technologies, has been a worthy, sustainable, and profitable endeavor whose local impacts can be certainly verified.  In particular, the vision, commitment, innovation, and sacrifice of the fossil fuel industry and the millions of talented employees, has been the irreplaceable and beneficial engine of progress for America.  Doing far more good than harm.  Thus, it is unjust to poorly treat and vilify an industry of people that do not deserve such ire.  Just imagine where the world would be without fossil fuels! 

Two possible agendas can explain¬†this¬†demonization and¬†woke¬†capital¬†mindset.¬†¬† First,¬†to deflect the¬†public‚Äôs¬†perception¬†of Wall Street¬†greed¬†(power and control)¬†and¬†poor¬†performance,¬†it is¬†much easier to¬†use¬†a¬†popular¬†cover¬†narrative¬†(climate change)¬†and¬†perpetrator¬†(fossil fuels)¬†than to¬†accept responsibility.¬†¬†And why not,¬†when doing¬†so¬†additionally¬†elevates¬†your status and¬†virtuousness.¬† Second,¬†distracting¬†an investor¬†from¬†reality¬†is profitable‚Ķand¬†words¬†like¬†‚Äúsustainability‚ÄĚ and ‚ÄúESG‚Ä̬†and¬†phrases¬†like ‚Äúsaving the planet‚Ä̬†are powerful¬†images¬†and¬†again‚Ķprofitable.¬†

 

Economy & Investment 

Recently the behemoth investment firm, BlackRock, which manages $7 trillion in assets,¬†committed to a multitude of ESG initiatives including substantially increasing its so-called ESG funds, pushing clients to adhere to the UN‚Äôs Sustainable Development Goals, and aligning itself with ‚ÄúClimate Action 100+‚ÄĚ aimed¬†at¬†improving business strategy with the goals of the Paris Agreement. ESG investing¬†today is estimated at over $20 trillion in AUM or¬†¬ľ¬†of all professionally managed assets globally.¬†¬†¬†

 

If¬†BlackRock and its sustainability-allies are true¬†virtuous¬†climate¬†believers,¬†why then has it been expanding its¬†firms‚Äô¬†holdings in serial polluting¬†Chinese investments?¬†¬†As a result,¬†millions of untold¬†investors, through¬†asset managers and their ESG vehicles¬†are¬†helping fund¬†and strengthen the Chinese Communist Party (CCP), and their¬†atrocious record of human rights violations and increasing¬†polluting policies.¬†¬†Shifting¬†this ‚Äúnew standard for investing‚Ä̬†reeks¬†of¬†hypocrisy,¬†misleading¬†shareholder¬†stewardship,¬†and¬†disingenuous profiteering.¬†

 

Trends show energy consumption will continue to rise globally in the 21st century.  Modern economies are becoming less materially intensive and more service and knowledge focused, while economy growth rates exceed slower environmental impact rates.  In part, fueled by the cyclical effect of affordable fuels and technologies that enable reducing environmental impact in the first place.  This decoupling effect of human development from the environmental impacts is predicated on more efficient human activity driven by energy, technology, and demographic trends, like urbanization of the planet…not unproven investment theory based on poor scientific, economic, and societal history. 

 

How can the woke sophisticates in the financial services world and beyond who knowingly underwrite China, and other implied nefarious companies, claim to be genuine progressive ESG loyalists, let alone proponents of justice of any kind? 

 

Energy & Natural resources 

The history of harnessing energy through technologies is an intertwined dance between the patient process of human activity, fueled by economic investment, but relative to the increasing ability to use natural resources more efficiently.  Americans should know this better than anyone.  The history of harnessing natural resources in this way has afforded America these current modern energy opportunities.  Again, one cannot simply skip steps on its way to maximizing human activity.  Diversifying investment products should favor those with the most eco/cost efficient solutions, relative to the specific stage in that localized process.  Understanding that applying a general global policy to local ecosystems, does not protect the very natural resources they aim to address.  Ordering targeted solutions for energy sources should favor the benefits to human development first, then focus on efficiency of those waste streams and use of natural resources. 

 

But to suggest that the idea of sustainability investments is the only conceivable path forward, is to infer that historical ones were not.  Not true.  Moreover, little evidence exists that human population and economic expansion will outpace the capacity to grow food or procure critical material resources in the foreseeable future.  And ironically, all modern so called renewable energy is truly neither renewable nor sustainable.  All require exploiting natural resources and underlying technologies.   

 

This sleight of hand woke capital is trying to pull off is fundamentally nothing more than an attempt to profit and take control of an energy transition.  But victoriously parading around their own virtue and value is good marketing…even though it may be hard to swallow.  Modern so-called sustainable options are simply not affordable…yet…nor remotely as efficient and helpful as advertised.   

 

Summary 

For this purpose, let us not pretend that demonizing an undeserved industry, while wrapping itself in the virtuous robe of climate change, is in of itself noble or accomplishes something that it has not done in the first place.  In the last few decades, humanity has seen exponential progress towards once unfathomable human development.  As a proponent of the oil and gas industry, supporting a diversified, efficient, and agnostic energy policy is the most complete historical and economic investment strategy.  Insofar as it uses natural resources efficiently, reduces poverty and increases modern living standards, and progressively balances capital/energy/labor economically, the virtue of investment and economic stewardship should be judged on what it has done and what it continues to do.  Throwing the baby out with the bath water solely on the perceived merits of perception or progressivism is neither responsible nor woke.  Efficient reduction of monetary and environmental waste has and will continue to propel humanity towards the summit of prosperity.  Only then can the luxury of progressive societal values truly permeate humanity as a whole and transform our planet, our ability to steward, and ourselves.  

 

–¬†INVITO¬†

As Tax Day approaches, and before the ink dries on your check to Uncle Sam, we take a moment to look back at the history of taxes in America...you know…to make you feel better.  So, get your tea bags or some prohibition-style libations, while we reiterate the age-old saying…. nothing is certain except death and taxes. 

But before we dive in, it is important to note that taxes were not always levied on Americans such as federal income tax, the alternative minimum tax, corporate tax, estate tax, the Federal Insurance Contributions Act (FICA), and so on.  Neither did the founders of America desire and intent to design such an arrangement.   

The early colonists had to deal with the British, which imposed a bevy of taxes on the colonists including a head tax, real estate taxes, and the infamous tea tax that led to the Boston Tea Party.   

After the Revolutionary War, the Congress¬†granted¬†the power to impose taxes¬†on the public. States were responsible to collect and pass¬†those to the government, mostly excise¬†taxes imposed on specific goods like alcohol and tobacco. The government also tried direct taxation‚ÄĒtaxing things an individual owned.¬†That was not popular, and the feds went back to collecting excise taxes.¬† And in 1791, Alexander Hamilton’s proposed excise tax on alcohol was enough to prompt the Whiskey Rebellion in Pennsylvania.¬†

 

The Civil War led to the country’s first income tax and the first version of the Office of the Commissioner of Internal Revenue‚ÄĒthe earlier version of what we now call the Internal Revenue Service (IRS). This office took over the responsibility of collecting taxes from individual states. Excise taxes were also added to almost every commodity possible‚ÄĒalcohol, tobacco, gunpowder,¬†and¬†tea‚Ķbut this time‚Ķwithout the party.¬†¬†Interestingly,¬†income¬†tax rates used to apply to everyone based on income regardless of status‚ÄĒsingle, married, and heads of households.¬†

The first estate tax was enacted in 1797 to fund the U.S. Navy. It was repealed but reinstituted over the years, often in response to the need to finance wars. The modern estate tax as we know it was implemented in 1916. 

Other taxes as a corporate income tax were enacted slightly earlier in 1909. 

 

Wars are Expensive 

In 1913, the States ratified the 16th Amendment, instituting the federal income tax where the actual form and directions were a mere four pages…today the total an intimidating 106 pages.  Income tax rates ranged from 1% on income of $0 to $20,000 up to 7% on income over $500,000. 

However, to finance America’s participation in World War I, Congress passed the 1916 Revenue Act and then the War Revenue Act of 1917.  From 1916 to 1917 the tax rate jumped from 15% to a whooping 67%…then finally settling at 77% in 1918. 

Wars are Expensive!  So, after the war, the federal income tax rates took on the steam of the roaring 1920s dropping to 25% by 1931.  The gift tax came about in 1924.  Sales taxes were first enacted in West Virginia in 1921. Eleven other states followed suit in 1933.  

 

The Great Depression 

The Great Depression was a worldwide economic downturn that began in 1929 and lasted until about 1939.  It was the longest and most severe downturn experience by the Western world, causing fundamental changes to economic policy, theory, and institutions.  But by 1933, the American recovery was in full swing.  But Congress raised taxes again in 1932 during the Great Depression to 63% on top earners…potentially lengthening this recovery progress.  Federal excise taxes on gasoline were implemented in June 1932 under President Herbert Hoover as part of the Revenue Act of 1932.  FDR signed the Social Security Act in 1935. The government first collected Social Security taxes in January 1937.  Dividend taxes were enacted in 1936 but only lasted through 1939. 

 

WWII and Beyond 

As mentioned before, war is expensive.  In 1944, the top rate peaked at 94% on income over $200.000.  By the end of the war and through the 1970’s, the top federal income tax rate remained high, never dipping below 70%.  Investment dividend taxes reappeared in 1954 and have persisted ever since.  The alternative minimum tax (AMT), a type of federal income tax, was not enacted until 1978, as a way to ensure everyone paid their fair share. 

It was not until The Economic Recovery Tax Act of 1981 that the highest rate was reduced from 70% to 50% and indexed the brackets for inflation.  The Tax Reform Act of 1986 expanded the tax base and dropped the top rate to 28 percent for tax years beginning in 1988.  The idea was that the broader base contained fewer deductions but brought in the same revenue. Further, lawmakers claimed that they would never have to raise the 28 percent top rate…this promised lasted three years before it was broken.   

By 1991 the top rate jumped to 39.6%.  However, the Economic Growth and Tax Relief and Reconciliation Act of 2001 dropped the highest income tax rate to 35% from 2003 to 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained this rate through 2012. 

The American Taxpayer Relief Act of 2012 increased the highest income tax rate to 39.6%. The Patient Protection and Affordable Care Act added an additional 3.8 percent on to this making the maximum federal income tax rate 43.4%.   

Today, the highest federal tax rate is 40.8%.  In context of this article…what’s the big deal?  Seems like a historically low tax rate.  But the difference between today and the past is the wide range of things that ARE taxed.  Actually, it may be easier to list the things that aren’t taxed…like…uhm…air?  LINK  However you split the baby, understanding America’s history on tax will cause you to cry and lash out in a violent rage or you will find ways to cope and develop strategies to take advantage of the complexity.  Either way, certainty is usually a valuable thing these days…and since death is inevitable…inevitably taxes only get worse when Congress meets. 

Happy Tax Day! 

 

Invito Energy Partners

‚Äú‚Ķbut in this world, nothing can be said to be certain, except death and taxes‚ÄĚ. What Benjamin Franklin was suggesting regarding tax, is as old as civilization itself. Take a long gaze back into history, and inevitability staring back at you is the long imposing face of the tax man. From every war, to every ruler, to the birth of Jesus himself; looking at history through this lens may shape the way we think, and feel, about ourselves and the cultures, as we understand them today.

 

Historically, tax is power to rule and affect human behavior. Limit that power and the effects on that behavior have massive implications.

 

Take the window tax, introduced by King William III, in England during the 18th and 19thcenturies. It was designed to impose tax relative to prosperity; the more windows you had, the more prosperous you probably were.

These simple property taxes resulted in changes to the daily lives for millions of Britons. Working conditions, architecture, and physical and/or mental health standards radically changed while folks developed ways to avoid the governments long arm into their pockets.

 

The American revolution, at its core, was a revolt over the oppressive taxation of the people. ‚ÄúNo taxation without representation‚ÄĚ was the cry. Every conflict from Iraq to the Roman empire was made possible by various taxes in some form.

 

The modern world today enjoys some of the highest tax rates in history with the average American paying 35% in taxes (UK 45% and France an astounding 55%). As a result, navigating the U.S. tax code has turned into an Olympic gymnastics event. So, what are we to do? If history is any indication, we will do what humans have always done‚Ķconform for ‚Äúthe betterment of society‚ÄĚ or contort around and away from the long arm of the tax man.

 

– Invito Energy Partners