Trading Now

Trading Now

Friday, September 4, 2009

Obama and Tax Rates May Define Our Future, or Lack Thereof

*Healthcare costs in this country and social security benefits costs are out of control. Two wars with not much to show for it also has been a drain on the tax coffer. States unable to meet payrolls so furloughs are the short term fix. Less tax revenue from so many job losses and what's a president to do? I am all for revamping the tax code, instituting an across the board rate for all and anyone who makes under $35,000 pays zero. Afterall, by the time these individuals get done paying their share of taxes AND fees (which is a tax, let's call a spade a spade), food costs, gas costs, living expense like RENT, they have nothing left over to pay for underwear at Walmart let alone a movie, all of which contributes to an economy that is already stressed and being more stressed by the government being the only employer and spender, which increases the debt AND deficit and will likely cause Arabs and Chinese and whoever else buys our debt in the form of US 10 year treasury notes (seen the drop lately anyone) to start dumping albeit in small quiet ways, much like the Bush administrations slow shredding of the dollar.

Once and Future Taxes

So far, the Obama administration’s plan for dealing with the budget deficit — an estimated $9 trillion over a decade — is to not dig the hole any deeper. That’s an important first step. President Obama deserves credit for proposing ways to pay for his two big initiatives to date: health care reform and energy legislation. Reducing the growth in health care costs, in particular, is vital to curbing future deficits.

As for the hundreds of billions of dollars in economic stimulus, their impact on long-term deficits is marginal because the spending is temporary. More important, deficit spending is warranted in a recession because it eases the downturn and in so doing, averts even worse damage to the economy and the budget.

But, sooner than he may prefer, Mr. Obama will have to face up to what he has so far avoided: the need to raise taxes broadly to rein in deficits.

The deficits are not of his making. Some two-thirds of the $9 trillion shortfall resulted from policies that predate his administration; most of the rest is the cost of policies that both parties consider necessary, like continued relief from the alternative minimum tax.

But when he inherited the burden of the budget mess, Mr. Obama also inherited the responsibility to clean it up. Neither economic growth nor spending cuts will be enough to fix the projected shortfalls. Nor is there enough to be gained by confining tax increases only to families making more than $250,000 a year, a campaign promise that Mr. Obama still says he will keep.

Assuming the economy has begun to recover by 2010, next year would be the natural time to start raising taxes. That’s because the Bush-era tax cuts are set to expire at the end of 2010. If Congress does nothing, taxes will revert to higher levels for everyone; if it extends all of the cuts, taxes will stay low for everyone; if it extends some and lets others expire, taxes will stay low for some taxpayers and go up for others.

Since 2010 is also a Congressional election year, lawmakers will be reluctant to raise taxes at all, and certainly not without considerable support from the White House, which is already worried about the 2010 elections.

Under these political pressures, Congress might be tempted to extend all of the Bush cuts at least through 2011 — and that would be a dangerous move because time is not necessarily on Mr. Obama’s side.

No one is angling to raise taxes during the recession, but the longer it takes to show real progress on deficit reduction, the greater the possibility that the nation’s creditors will demand higher interest rates on loans to the Treasury. That would worsen the deficit by raising the nation’s borrowing costs. And with the recovery of both the financial system and the housing market dependent on low interest rates, an unanticipated or uncontrolled rate increase would be a crisis in its own right.
The question then is not whether taxes must go up, but when, how and how much. The White House budget director, Peter Orszag, has said the administration is working to bring the deficit down in the 2011 budget, due early next year. But when asked recently by The Wall Street Journal for details, including the possibility of higher taxes on families making less than $250,000, Mr. Orszag said that the administration was not yet giving any specifics on the next budget.
go here for full article

No comments:

Post a Comment


Wikinvest Wire