New Taxes...Hooray!!!

During the recent campaign season, we heard a great deal about lower taxes for the middle class, tax cuts for 95% of the American people.

Then government spending ramped up like never before. So what gives? How can spending increase while taxes decrease?

The following excerpt is from the Thoughts from the Frontline Weekly Newsletter, written by John Mauldin.

This week saw President Obama give us a budget with a projected deficit of $1.75 trillion dollars, and a massive tax increase on the "wealthy." But hidden in the details was an even larger tax increase on everyone. Obama wants to create a cap-and-trade program for carbon emissions. This is expected to generate $79 billion in 2012, $237 billion by 2014, and grow to $646 billion by 2019. These will be payments by energy (primarily utility) companies to the government. That will cause utilities to have to raise the prices they charge customers for energy. Such a level of taxation is eventually 4-5% of total US GDP. That is not small potatoes. And since the wealthy do not use all that much more power than the rest of us, it will affect the lower incomes disproportionately.

It will take money out of consumers' pockets and transfer it to the government. You can call it cap-and-trade, but it is a tax. And a huge one. Anything that will take 4% of GDP away from consumer spending is not business friendly. And by driving the cost of energy up, it will drive high-energy-using businesses away from the US to developing countries where energy is cheaper. It will make it even harder
for people to save money and drive up costs for the elderly and retired. But it
will make the environmental lobby happy.

Expect more hidden taxes in the near future. There are consequences to big government spending!!


Questioning Politics

President Obama's Tax Plan

Questioning Politics

Obama Declares War

Obama gets thrashed in an article by Larry Kudrow on CNBC.Com. In discussing the State of the Union address during the week, Kudrow writes:

He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.

That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession or from the standpoint of expanding our
economy’s long-run potential to grow.

Is Kudrow taking it a bit too far by calling this a declaration of war? Maybe. Will Obama's plans to spend our way out of the recession work? At some point, the government can spend enough to revive the economy. But at what cost?

Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.

There is a lot to fear about the current spending plans by the administration, including the threat (promise?) of tax increases, and the specter of inflation in the near future, not to mention what are we going to do should this spending program not work.


Questioning Politics

If There Must Be a Tax Increase...

The other day, one of my favorite blogs, Independent Political Report, posted a letter from Ralph Nader regarding a financial transactions tax.

I have not paid attention to Nader or his views recently, but I appreciated some of the ideas put forth in this letter. For instance,

Let’s start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?

The basis of my position on tax entails trying to find the most fair and equitable tax treatment for all people. I hate paying taxes, but I understand it is a necessary in order to provide for a safe and effective country. It doesn't seem fair to me that speculators are purchasing assets (stocks, bonds, etc.) without paying a sales tax, simply because of the type of asset it is. Nader goes on to say,

He adds that after the 1987 stock market crash, securities-trading taxes “or similar measures” were endorsed by then Senate Minority Leader Bob Dole and even the first President Bush. Professor Pollin estimates that a one-half of one percent tax would raise about $350 billion a year. That seems conservative. The Wall Street Journal once mentioned about $500 trillion in derivatives trades alone in 2008—the most speculative of transactions. A one tenth of one percent tax would raise $500 billion dollars a year, assuming that level of trading.
Economist Dean Baker says a “modest financial transactions tax would be enough to “finance a 10% across-the-board reduction in the income tax on labor.

I would love to see a decrease in my income tax bill. I don't believe a 0.1% tax added to my purchases of stocks would hurt me, nor would it affect most people.

There are conditions, however, to my support for a tax of this nature. I would only favor this tax if there is a reduction in income tax. This condition would be next to impossible to be included, with the economy in being in its current state.

Condition #2 is that there be a waiver of financial transaction taxes in 401(k) and other retirement accounts. Taxing retirement accounts would be counterproductive.

I don't anticipate ever seeing a proposal such as this being discussed seriously in Congress or the Senate. The big financial institutions who would end up paying a large chunk of the increased revenue just wouldn't allow it to happen. It's all just wishful thinking.

If I Were President: The Economy

I believe in the constitutional provision for separation of church and state. I wish there were an additional separation of economy and state.

If I were president, I would do all I could to get government out of private business as much as possible.

I believe in less regulation.
I believe in lower taxes.
I believe in free trade, not only within the country, but also internationally as well.

What about all the problems with the current economy? I know it hurts, but it's part of the ebb and flow of a free market. For too long, we the people have been living beyond our means, and it's time that we face the consequences. The biggest problem I have with the current environment of bailing out every failing industry is that these industries created the problems themselves. We need to bring back accountability to the free market. They should have to face the consequences, up to and including failure and demise. The lesson they should learn is to be better prepared for swings in the economy. The lesson they ARE learning is that it's okay to play the risk game knowing that the government will bail you for your bad decisions.

What about job losses created by the failure of businesses? It's unfortunate that people who work for these companies lose their jobs, when they generally are innocent bystanders. There is little they can do to avoid this mess. But I firmly believe that new jobs will always be created by stronger, better managed companies. There are jobs for everyone if they are willing to do whatever it takes to land a job, even though it might mean working for less pay or in a new industry or profession.

The best thing for the economy right now is to lower taxes. This would mean more money in the pockets of those who are willing and able to spend it. Lower taxes would lead to the creation of new jobs. The other side of the equation would be a massive reduction in government spending. I am a proponent of getting the federal budget balanced. This is becoming harder and harder with each new bailout. Under my direction, the government spending would be slashed tremendously. No more earmarks. No more pet projects. No fluff. We'd get our debt back under control.

There will always be down times in a free economy. We just need to learn to prepare for these down times. It's a tough lesson to learn, but we the people can accomplish anything.