Tax Increases Will Exacerbate Future Economic Downturns

What is the first and most important piece of investing advice from a financial planner? Diversify.

Don't concentrate all your financial assets in one place. That way if one investment goes south for some unforeseen reason, the investor won't lose everything.

But when it comes to income tax revenue-one of the federal government's primary assets-President Obama is on a concentration binge. Federal income tax revenue is already skewed toward high-income earners, and he wants to skew it even more.

By concentrating rather than diversifying, the president is ensuring huge revenue slumps in the future.

Here's why. Those Obama considers wealthy, families making more than $250,000 a year, pay 53 percent of all income tax, according to the Tax Foundation. Those making more than $1 million, apparently House Speaker John Boehner's definition of the wealthy, pay 26 percent of all income taxes.

A lot of the income for high-income earners is based on bonuses and investment income, which often take big hits in an economic downturn, dramatically lowering high-earners' income. And when their income tanks, so does their tax obligation.

One of the reasons that high-income states like New York and California experienced such a decline in revenue during the recent recession is that their top earners made much less money. Less income meant fewer taxes-and a state financially strapped and scrambling to find additional funds.

Yes, state revenue booms during the good years, but politicians never set aside enough to cover them through the lean years.

By contrast, a broad-based, low-rate tax that depends on everyone paying something is much less susceptible to the wide income swings that occur in a recession. And many economists are encouraging Washington to pass such a reform.

That is not what Obama wants. He is demanding that our already highly progressive income tax become even more dependent on more and more money from fewer and fewer people.

A financial planner would tell an investor who was concentrating his assets in a few places that he was risking his financial future. That's also good advice for the president.