Tax Fairness and the Small Business Owner
I think discussions about tax fairness are fine. As practical, we should share the burdens equally for living in this great country. But in terms of whether wealthier Americans are paying their fair share, to me, there's simply no argument to be had.
What's also interesting about the two scenarios above is what they suggest about the appropriate risk profile for each family. Specifically, the guaranteed pension payments of the city worker, and their attendant value of $1.6 million actually puts their "savings" well ahead of the business owner's savings.
When investing each should take a different path toward a secure retirement. Accordingly, it's the city worker who should be the more aggressive, risk-taking investor. The risk of the city worker is a pension that will not keep up with the cost of living, and inflation will chisel away his purchasing power over time.
The city worker's cash flow is fixed and therefore should be matched with an equity portfolio that can grow over time and keep up with inflation. (See my article on the neo-classical retirement portfolio.)The business owner, though less risk-averse by nature, should be more conservative in how he and his spouse invest their savings. Why? The absence of guarantees in their retirement income, and at age 50, a very short timeframe to make up any losses in their portfolio. Also, if the business should fail, the business owner does not qualify for unemployment. Therefore the business owner should be more concentrated in fixed and guaranteed return investments with a smaller allocation to equities and risk assets As a result, if you are a hard-charging entrepreneur, check your natural instincts and create an oasis of calm and balance in your retirement investments. One the other hand, if you are mild-mannered worker by day with a guaranteed pension, you might want to channel your Gordon Gekko at night. So, where do you stand on retirement and taxes? Who has your vote, the left or the right? This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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