As tax filing season mercifully winds down, you have likely thought at some point in recent days/weeks about investing in tax season stocks like H&R Block (HRB), which tends to rise during tax season. This year it has made a decent move since January but the headwind of a weaker market has muted recent gains; it’s still up 14.6% year to date.
H&R Block was founded back in 1955 by two brothers, Henry and Richard Bloch, and the company has gone on to prepare more than 800 million tax returns since.
Another tax season stock is Intuit (INTU), which has an amazing 100 million customers worldwide with TurboTax, QuickBooks, Mint, Credit Karma, and Mailchimp. Intuit’s mission is to help put more money in consumers’ and small businesses’ pockets, saving them time by eliminating work, and giving them the tools to make better financial decisions. Intuit was founded in 1983 and went public in 1993.
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Intuit stock is down sharply in 2022 but in the last month of tax season it has gained about 10%.
A bigger-picture tax investing question is to ask what we can do to unleash investment-led growth to jolt the economy and stock market while winning the U.S.-China power rivalry.
I propose a significant simplification of the tax code.
A Simpler Tax Code
As Americans struggle with completing their tax returns, the Internal Revenue Service (IRS) estimates that it costs about $200 billion each year to comply with an American tax code that exceeds 10 million words. This is why more than 40 countries and jurisdictions use some variation of a simple flat tax to raise required revenue without creating huge costs of compliance and the manipulation of the tax code for political ends. All this leads to slower economic growth, bigger government, and the misallocation of resources.
For example, one simple idea is to have the first $100,000 of income taxed at a rate of 10%. The next $250,000 of income would be taxed at a 15% rate, and income above $400,000 would be taxed at a 20% rate.
There would be a $1,000 deduction per child, spouse or dependent so that a family of four with an income of $50,000 would pay $2,000 and a family of four with an income of $100,000 would pay $7,000. Everything else in terms of tax credits and deductions would be thrown overboard, though of course the political pushback would be substantial.
To encourage investment and broaden the ownership of stock, the same rates would apply to capital gains and dividends without distinction between short- and long-term capital gains. In addition, there would be no tax on savings, no deduction for paid interest, and no deduction for property taxes beyond a first home.
Keeping the tax rate for dividends equal to the capital gains rate would take away a common rationale for corporations using available cash for stock buybacks rather than investing in future growth.
Overall, the vast majority of Americans would benefit from a much simpler tax code that is also more pro-investment and pro-growth. Write your Washington representative today!
What do you think of my proposal to simplify the tax code? And do you have any other tax season stocks not listed above that you like to invest in?