IceCap Asset Management On 'Super Taxes' And Why Elvis Has Left The Building

It’s no secret by now that governments in Europe, Japan and America have spent and borrowed beyond their means. As IceCap’s Keith Dicker notes, including both current debt and future unfunded liabilities, it is estimated America owes over $87 trillion dollars, while the Eurozone countries are on the hook for over $89 trillion. That’s a fistful of dollars. From a tax perspective, the incapacity of these super economic powers, becomes all the more clear. America’s annual tax revenue is only $2.5 trillion, while in Europe, they manage to squeak out roughly $5 trillion. From this view, America is leveraged 34.8x their tax revenues, while the Eurozone is leveraged at 17.8x their tax revenue. As Keith points out in his excellent letter, for the US, Japan, and Europe, Elvis has very much left the building on getting back to ‘normal’.

Since we have all become numbed by talks of billions and trillions, let’s put these numbers on the dinner plate of the average American family. According to the OECD, the average American family has income of about $31,000 per year. If this average family borrowed like the American government, it would have over $1.078 million in loans to pay. Good luck finding a bank to lend you that amount of money.

European, American and Japanese governments, on the other hand, continue to spend more than what they collect in taxes. Naturally, this means the money owed by these countries is always increasing. More worrisome is the fact that when interest rates eventually rise, the interest owed on this debt increases exponentially.

Even more worrisome, considering these countries are deeply committed to defying the laws of mathematics and never defaulting on their debt, only one outcome is assured – taxes have to increase, and government services have to decrease. In the end, everyone has to pay. Despite what Brussels may say, there is no magic solution.

The chart above shows the trend in taxes since 2010, for simplicity just note there are an awful lot of green “up” arrows. Don’t expect this to change anytime soon.

If the economy really was clipping along at an ear to ear grinning pace, several things would have happened by now. First up, central banks in the US, Canada, Britain, Europe and Switzerland would have all begun to raise interest rates. Not too mention, the money printing machines would have also begun to grind slower.



In addition, employment should be going gangbusters, while everyone’s favourite measurement of a stronger economy – inflation would be accelerating as well. Yet, none of these events are occurring.

Yet, the real questions behind the upcoming tax hikes are 1) why it will happen and 2) what will be taxed.

And more importantly – what is the Super Tax?

Full IceCap Asset Management letter below:


IceCap Asset Management Limited Global Markets 2013.10.pdf


via Zero Hedge Tyler Durden

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