Thursday, June 11, 2009
Expect a call for tax increases by the end of the year
So far, the Obama Administration has borrowed and spent massive amounts of money without asking for a hefty tax increase. That spending and borrowing has a cost to the economy.
There are already pressures on the bond market, resulting in long term interest rates rising. That rise in long term interest rates is dampening the recovery that was starting to bud in the housing and mortgage markets. It also is hampering business borrowers.
Further, the big borrowing is getting the world's attention. The value of the dollar is not what it once was. China and Russia are looking to invest in the International Monetary Fund instead of in dollars. Oil prices are going back up, despite low demand, because oil is traded in dollars and dollars are less valuable on the world market with the huge debt financing of the United States.
In the fall, the President and the Congress are going to address health care and most of the plans being offered provide for some sort of universal coverage. The merits of such can be discussed in another post. The fact is such a plan will take even more government spending. Thus, increasing the pressures discussed above.
I realize that the above reading can be boring to some. But, that boring stuff is what causes your gas prices to go up, mortgage rates to rise, and inflation to increase, affecting the price of every good and service one obtains.
The Democrats will correctly note that without some sort of way of paying down the debt, the credibility of the American dollar will be severly compromised. I believe that they will use the looming crisis, caused by their big spending and borrowing, to call for a tax increase. Perhaps it will be targeted on the higher end tax bracket. However they package it, they have created a situation in which the United States government needs more revenue. The Democrats in Congress and in the White House will see raising taxes as the answer.
Unfortunately, raising taxes will likely put the economy back down, resulting in continued low revenues in regards to the spending.
There has been no President of the United States since Franklin Roosevelt who has so expanded the role of the government in the economy. President Obama's charming personality has created an atmosphere in which he and his allies in Congress are able to dramatically change the role of the federal government in American business. Even Franklin Roosevelt could not fathom the depth of our growing debt or the size of our growing government.
Former President George W. Bush overreacted to September 11th with the creation of a new cabinet department. President Obama is not dismantling that department or the powers of it given to the government. Instead, President Obama is moving the United States more to a level of soft socialism.
Throughout history, the free market has been best to create wealth. When a business failed, a better business came along and took its place. However, if the government taxes the potential new businesses in order to pay to prop up the failing ones, then the market itself eventually collapses. It happened in Brazil in the 1960s.
Perhaps President Obama and the Congress are soft socialists and believe in a state controlling business. Perhaps they are just responding to the big businesses that gave them hefty campaign contributions. Whatever the reason, they have created a debt crisis. One I predict they will compound by raising taxes. Wait and see.