Thoughts On ... Study Guide for the 51st State

January 13, 2025 | Matt Barasch


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Given that Canada is poised to become the 51st state, we thought we would provide some new “laws” for Canadians that will soon be enforced by the CSP (“Canada State Police”, formerly the RCMP)

photo credit www.goodreads.com

Given that Canada is poised to become the 51st state, we thought we would provide some new “laws” for Canadians that will soon be enforced by the CSP (“Canada State Police”, formerly the RCMP):

  • The First Amendment guarantees freedom of speech and the press; however, you are not allowed to insult “tech bros”, nor is there freedom of the press when a news outlet is owned by a tech bro – the Founders wanted it this way.
  • The Second Amendment guarantees that “a well regulated Militia, being necessary to the security of a free state, the right of the people to keep and bear Arms shall not be infringed.” First off, we get it, this was written 240 years ago, and people spoke differently back then. But seriously? Was there no English teacher available to check the grammar and sentence structure of the Constitution? Why are “militia” and “arms” capitalized? Using “being” in a sentence when you are not referring to “human beings” or “time being” is just plain lazy. And “shall” as opposed to “will”? I’m sorry, this Amendment should be overturned by the Supreme Court (more on these morons in a moment) on mere principal alone. Anyway, you should now arm yourself. Also, we completely ignore the first part about the militia, so don’t worry, you do not have to enlist, unless you want to shoot some stuff, in which case, there will soon be a Canadian National Guard.
  • No one knows what the hell the Third Amendment does, so you can ignore it.
  • The word is “sorry”, not “soory”. Also, you are not allowed to apologize for anything, so it doesn’t really matter anyway how it’s spelled. In addition, the word “dawn” rhymes with “lawn” and not “con”. America will be adopting the use of “eh”, as it’s kinda cool, so you may continue to insert this at the end of every sentence. Lastly, we will grandfather “Gord’s” and “Lorne’s”, but no children going forward can be named such, unless there is a Disney film with a main character that has one of these names, in which case it will become legal again.
  • If you choose to watch Fox News, then a migrant horde is marching toward the United States, while DEI is responsible for wildfires (and not the lack of rain and high winds), Joe Biden is the head of the greatest crime syndicate since Al Capone, all government data is fake, and the country you are about to join is collapsing in on itself. This will all change on Inauguration Day, so you can simply wait until then to watch Fox News and then everything will be fine, at least for the next four years.
  • The Supreme Court is made up of nine thoughtful, non-political jurists that interpret how laws fit with the U.S. Constitution; although, they also try to acknowledge that the Constitution was forged by a bunch of white, mostly slave owning men more than 250 years ago when it took four minutes to reload a gun. Soory – none of this is true (also, we are not officially a state yet, so we can still say “soory”).
  • Voting and the counting of votes in a timely fashion will become one of the hardest things in the world. Thankfully, we will no longer have to Google “prorogue” every seven or eight years.
  • Windmills are really, really bad. Like the worst thing since the Plague. They kill billions of birds and are apparently really noisy. Also, anything that slows the flow of water in a shower as a way to conserve, is the work of Satan.
  • You are not required to learn the National Anthem as only 1 in 23 Americans actually knows the words.
  • Sundays are not for church; they are for football.

There will be a test; however, because we live in the era of “everyone gets a trophy”, it will not be graded.

Okay, with that out of the way, we thought this week, we would look at some charts that caught our eye and the potential implications of such. In some cases, we have made some bold predictions that we think may play out in a “surprising” 2025. In each case, we will start with a chart and then comment:

  1. The End of Income Taxes?

We are looking at a chart of U.S. Federal revenue that comes from tariffs versus income and corporate taxes. As you can see, when the U.S. was first established, most of the revenue came from tariffs, but through much of the 1800s, this gradually declined in favor of first corporate taxes and then eventually individual income taxes (officially established in 1913). Taxation became the dominant form of revenue through the 1920s, but then the Great Depression came along and a combination of a global trade war, which helped to make the depression, umm, so great, and a sharp decline in incomes, which greatly lowered tax collection, helped to push tariffs back to the forefront, at least for a spell.

Donald Trump loves tariffs and the economic team that is coming in seems to favor them as well. The Republican party has long viewed income taxes as the devil’s work and so we wonder whether or not something truly radical could be coming when Trump takes power. Because of what is known as “Budget Reconciliation”, the Republicans in the Senate will essentially only be able to pass one budget bill this fiscal year that does not require 60 votes (in other words, a bill that would not need Democratic support). Thus, the bill is likely to aim high, as they only really have one shot at this.

Given the importance of Trump’s legacy to Trump and the likelihood that the GOP loses control of the House of Representatives in the 2026 midterms (because incumbent parties almost always lose seats and they have a very narrow majority), we would posit that a plan, which slashes income tax rates dramatically and looks to replace the lost revenue with tariffs (i.e. going back to the 1920s model), would be a potential big surprise for 2025.

  1. Will mortgage rates hurt Trump?

While we tend to think about inflation in terms of the cost of “stuff”, the biggest impact may be felt on the interest rate side. Trump campaigned on bringing down prices and while we have serious doubts that this will be the case – the “price” of mortgages may be the most important issue as high mortgage rates have almost completely frozen the U.S. housing market. The average age of first-time homebuyers is up to 38 (from 32), while they make up 24% of the market, which is an all-time low. Many of Trump’s proposed policies – tariffs, mass deportations, tax cuts – are going to potentially re-spark inflationary pressures, which could put more upward pressure on long-term interest rates and thus mortgage rates. It’s easy to make promises, but financial markets are fickle when it comes to helping you keep them.

  1. Corollary to thought bubble #2.

Call this the companion to chart #2 – home prices have skyrocketed and while disposable income is up, it has lagged home prices in a big way. Mind you, this is not nearly as bad as Toronto or Vancouver, but still very problematic for all of the promises that come with Trump 2.0.

  1. Could China drop a stimulus bomb?

China is an unsung risk factor that no one is talking much about. Add the risks of Trump tariffs and things could get pretty messy for the world’s second largest economy, which is dealing with a massive debt bubble and an economy that is struggling to shift from investment driven to consumer driven. We would posit, with no evidence, that China is preparing a massive (think 2008/09 Financial Crisis but add some steroids) stimulus package designed to offset the impact of tariffs and kickstart its moribund economy. Commodity prices have already begun to recover in early 2025, so there is some possibility that markets are beginning to sniff this out.

  1. Is the House of Representatives going to thwart Trump’s agenda?

Back in 2017, Trump 1.0 suffered a series of stumbles (the repeal of the Affordable Care Act the most notable) before it finally managed to push through a large tax cut. This was despite a near 50-seat majority in the House of Representatives, which allowed for some defections by the disparate wings within the Republican party. 2025 brings no such buffer. In fact, the Republicans currently hold a five seat majority, which is not only the narrowest majority in history, but also means that the GOP can only lose two voters (technically it’s one right now as Matt Gaetz resigned his seat for reasons we won’t get into, but it rhymes with “mervert”) if it hopes to pass any legislation, assuming Democrats vote no to most legislation (not a big leap). Given that the GOP has generally struggled to find consensus on many issues, let alone near 100%-unanimity, we wonder whether the House could undo much of the high hopes of Trump 2.0. With a government shutdown looming in March and the Democrats seemingly unwilling to be the adults in the room as they have been for much of the past two decades, we would not be surprised to see some chaos as the year unfolds.

  1. Will private sector jobs come back to Canada?

We have harped for a long time about the lack of private sector job creation in Canada. With the exceptions of Nova Scotia and Alberta, the vast majority of jobs in Canada over the past half decade have been public sector, which is unsustainable as the tax base can only support so much. With a likely change of government in 2025 and potentially a more pro-business focus, we think there is a lot of low hanging fruit, even in the face of potential U.S. tariffs.

  1. Will AI become useful?

Artificial Intelligence has obviously become all the rage, but the actual use case – at least for consumer AI – remains to be seen. Depending on the country, between 20%-40% have tried ChatGPT. However, a very small percentage of these folks are actually daily users, which would better define its use case. For our part, if you are into podcasts and also like to read, but find you don’t have the time to read, try Google’s Notebook LM (just Google it), which takes pdfs and converts them (in about 60-seconds) to 15–20-minute podcasts, in which a man and a woman discuss the topic (it’s free BTW). While they occasionally might sound like AI-bots, 95% of the time you will not be able to tell the difference.

Bottom Line: While we generally have a positive outlook toward 2025. Trump 2.0 is likely to bring pro-growth policies, but with inflation still very much an issue, it is a narrower fairway in which to land a three iron into a stiff crosswind (insert hard here for our non-golfers) than was the fairway he enjoyed in 2017. Further, with a narrow majority in the House of Representatives, Trump 2.0 will not enjoy the majorities that Trump 1.0 had in 2017/18 when much of his agenda was pushed through. Thus, our outlook comes with a healthy dose of skepticism. Our outlook for Canada remains more positive in the long run; although, with the government basically locked down for the next 3-4 months, we think it may take until midyear before our thesis of: 1) lower rates benefitting a rate sensitive economy; 2) a more pro-business government; 3) attractive valuations – starts to play out.

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