Permanent excise taxes inculcated the English to the practice of taxing all citizens; soon this matured into the conviction that all should contribute towards the support of the government. The poor ought to pay taxes to the best of their ability as part of their duty to society. John Locke, the political theorist intimately connected with the Glorious Revolution, whose writings served as the basis for the Declaration of Independence, strongly supported this idea. ‘Governments cannot be supported without great charge and it is fi t everyone who enjoys his share of protection should pay out of his estate his proportion for the maintenance of it’. Th e contract between government and its citizens, he believed, included an obligation on the part of each constituent for the maintenance of the state. Th is in turn meant that governments could ‘not [to] raise taxes on the property of the people without the consent of the people’. A century later Adam Smith would echo this sentiment; his first ‘maxim of taxation’ declared, ‘Th e subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities’

The sector selection is one of the most important performance drivers in a corporate bond portfolio. The overweighting and underweighting of different industries is a key element in a corporate bond strategy. The weighting of sectors in a corporate bond portfolio is the result of controlled deviations from the benchmark. They are based on the analysis of the operating environment of specific sectors, a bottom-up analysis of the respective companies and the risk-return profiles of bonds from a specific sector. It is advantageous to set up a corporate bond team by sectors because this structure allows an in-depth coverage of all sectors and the understanding of the competitive environment as well as the market positions and management strategies of single companies out of each sector. An industry consists of a group of firms which offer products that are close substitutes for each other.

The breakdown of real GDP in its components highlights the importance of private consumption and investment for the state of the economy. In Q4 2003, personal consumption and investment accounted for 87 percent of US real GDP, that is, these components are major drivers of the economic cycle. Although the National Bureau of Economic Research (NBER) that is responsible for dating recessions employs a variety of indicators to determine the peak and trough of an economic cycle, recessions are usually characterized by declining private demand. Tthis was not true for the 2001 recession. The consumer held up very well, taking on even more debt and thus stretching his balance sheet to the limit.

Tax rebates and incentives like the zero percent financing in the automotive sector supported the high level of consumption additionally, so that the indebtedness of private households reached record highs while the savings rate plunged to extremely low levels by historical standards. This combination explains not only the limited downturn of retail sales during the 2001 recession, but also the sluggish recovery compared to former recessions.