I subscribe to a number of newsletters that curate business news. Every now and then as I’m nodding my head and saying “yep,” “got it,” uh-huh,” a story or headline stops me. Two very different topics did that this week: Sextech, and the potential timing of Biden’s tax increase.

Sextech is On The Rise

“The poor druggist he was going insane,
His stuff is selling out like never before,
He finally had to up and close the store.

All the boys were getting ready to fight,
Betty Lou’s gettin’ out tonight.”

—Betty Lou’s Getting Out tonight – Bob Seger

It’s been formalized as a category and it’s booming. Basically, after a year of lock-downs, WFH + no live flirting with co-workers, and closed workout clubs, America is insufferably tense and can’t wait to get-it-on. Sextech startups (nothing new as the category received coverage in 2018-2019) are booming in 2021 even as VCs say “No Comment” when asked why they invested. It was a Business Insider story that caught my attention. In the in-depth story behind their paywall for subscribers, BI covered 7 startups that have raised nearly $500M since founding. Yep, half-a-billion dollars on 7 startups. Now, sex sells and it’s a big-dollar industry. News headlines a year or so ago proclaimed US porn revenues were estimated to be $15B – more than the NFL. Maybe I haven’t been paying attention (apparently) but I was shocked by the level of investment in toys, clothing and decidedly personal, non-porn products. Or maybe I just don’t get the tech angle – the Biz Doc Babe is more than enough for me. 😉

Nonetheless, you can add add sextech to the list: fintech, insurtech, agritech, etc. This sector is quite dedicated to helping people enjoy themselves in highly personal ways as Vaxs and time itself enables them to move on from a quite restricted COVID chapter of life.

“Party on, Garth — Schwing!”

Biden Also Has a Jones — For Your Capital Gains

Unless you were in a coma, you saw the top-tier Ordinary Income tax rates proposed by the Biden administration AND the plan to tax Capital Gains & Dividends at those Ordinary Income tax rates for those with tax returns totaling more than $1M per year. That led to headlines pointing out that the wealthy who live in CA and NY would pay nearly 60% in tax on Capital Gains transactions. The media certainly did a nice job of freaking out those blue state residents.

I’ll take a moment to rant on the obvious. Capital Gains does not simply apply to the wealthy and their real estate sales transactions. It’s a brutal kick in the gut to entrepreneurs who earn dividends from or sell their companies – ones that they built and that created jobs which, in turn, contributed to the local and national economy. While it may be a useful populist headline foisted by politicians to say “the rich are now paying their fair share,” let’s keep in mind we’re talking about small business owners, not just the celebrity set and top Wall Street bankers. Those same politicians are also not waiting until tomorrow to raise taxes and collect tax dollars to pay for their programs – they are printing money right now. $1.9T, if you didn’t notice.

BUT WAIT – the aforementioned politicians MIGHT NOT be waiting until tomorrow to collect the increased taxes. What was not covered in the vast majority of news stories about the Biden tax plan was the potential timing. There is a growing chorus of whispers below the surface that are saying the Biden administration might push for a demarcation date in September when the tax increase bill is introduced on the floor of Congress and, thereby, make the tax increase apply to full-year 2021. These voices say the Biden administration knows exactly what will happen the minute the tax increase passes: there will be a monstrous investor liquidation in multiple asset classes during Q4 2021 before the Biden tax increase takes effect in 2022. To ensure there’s “no advance notice” before the 2022 rates go into effect… the Biden administration will make the new rates retro to 2021.

This is disturbing. Retroactive application of the rules of engagement causes unintended consequences as businesses would have made different decisions if armed with different taxation algebra.

I spoke to several small business entrepreneurs this past week at a private event. They said they would have managed 2021 differently, even as they fight the economic effects of COVID-19, if they knew taxes were going up this year. One comment that stuck out is, for one founder, 2021 bonuses for his team will be impacted because the business won’t have the money to pay them if the Capital Gains and Dividend rate is higher thanks to a retroactive application of the tax increase. “I’m not the government, I can’t spend a dollar twice. My profits are classified as dividends and constitute my salary and the pool from which I invest to expand the business next year. Do I pay bonuses as planned and invest in an expanded building as planned but tell my wife, Sorry, babe, the math changed in September, I own the business but I worked for free this year?” Populist speeches that tie tax increases to “punish the rich” don’t include the fine print: raises, bonuses and job creation will be negatively impacted.

I’m not angry. Frankly, I’m also not surprised. I am more than a bit frustrated but that frustration is being channeled into positive energy. The changing rules of engagement will never beat me or stop me from leaving the people around me better than I found them.

“It’s not whatcha got, it’s what you give
It ain’t the life you choose, it’s the life you live.”

—What You Give – Tesla

Until next time – it has come to this!

• Feb-22-2024
• Finance