The Cruelest Tax of All

Americans aren’t particularly savvy about all things economic. One thing they do understand is high gas prices. I watch a lot of business news, and sometimes I wonder if the folks doing the commentary live in the same world I do. Last time gas prices got this high, the economy went belly up. Granted it was aggravated by the excessive and reckless debts that accrued to our banking institutions at the instruction of Barney Frank and his Freddie Mac and Fannie Mae cohorts...but it was still the gas prices that lit the fuse.

Couple the high fuel prices with soaring food prices and one has inflation, the cruelest tax of all. The pain is primarily born by the poor and middle class. The uber rich don’t give a rat’s ass about the cost of fuel, they can afford it. It is the rest of us schmucks that are footing the bill.

President Obama said he wasn’t going to raise taxes on the poor and the middle class. Technically, he hasn’t. But his policies have back door’d ya!

You see, there only three ways the government can raise revenue to pay off the debt. The first is to raise taxes. The second is to devalue the currency. Our government has chosen the latter. By printing billions of dollars and putting it into circulation, it makes the money that was already floating around worth less. The government benefits by paying back existing debt with cheaper dollars.  The only problem is they keep borrowing.

Sounds like a good deal? Not really!! You see, while the government is paying back foreign debt in devalued dollars, the stuff we import goes up in price…and guess what import a lot of! Oil!!! So while Uncle Sam is paying back less than it borrowed, you are picking up the slack by paying more for the things you need to live. That's the hidden tax on the poor and middle class. You know… the tax that Obama said he wasn’t going to do.

The pain extends to foodstuffs as well. If our dollar is worth less, then the other currencies that haven’t been devalued are worth more. These folks come into our country and buy up all the wheat and corn at cheap prices for them, forcing us to pay more if we want a bowl of cereal in the morning along with our very expensive toast.

There is no magic wand to get rid of the debt, pull at one end, and it will fly out the other. Sooner or later, somebody has to pay for Obama’s spending sprees.

I did say there were three ways the government could climb out of this mess, but only mentioned two. Number three is to grow the economy. Stand up to China. Stand up to OPEC. Stand up to the EPA. All of these things may be initially painful, but it will fertilize our economy and eventually we will regain our manufacturing prowess. We work harder; we work longer; we work smarter; and we work more productively than any other nation in the world. But unless this spirit is unleashed, we will continue to pay the inflationary piper.  And the cruelest tax of all will continue on those who can least afford it.

BRICS and S&P...Economic Storm Clouds Gathering

The winds of war continue to swirl around our economy and currency. Standard and Poors, while maintaining America’s Triple A credit rating, downgraded the outlook for American debt to negative. That means there is a one in three chance that Standard and Poors will downgrade the credit rating of the United States within the next two years. It will destroy the American economy.

Simultaneously, the BRICS nations (Brazil, Russia, India, China, South Africa) met in China last week and are currently devising a transition plan to replace the dollar as the world’s reserve currency with the Chinese yuan or a new currency based on a basket of currencies. If this happens, the cost of gasoline will double overnight, if not by more. The prices of imported goods in Walmart will shoot to the stratosphere.  If you don't think this can happen...just watch!

This is scary stuff, and well within the realm of possibility as Obama and his band of merry academics continue down the path of "print and spend" money. In case you don’t know it, the reason why interest rates are so low is that while the Treasury Department is selling American bonds, the Federal Reserve is printing money to buy them. We are buying our own debt.  When the Fed stops printing money, interest rates are going to go up fast and furious.

What is even more disturbing is that the Obama apologist press is completely ignoring the magnitude of the problem. Turn on CNN and NBC, you will see stories about race, gay rights, and this past week…last year’s horrible oil spill and the effects on the gulf coast and those evil, evil oil companies.

They are not reporting on the United States funding deep water off shore drilling off the Brazilian and Columbian coasts. They are not reporting about the currency issues. They are not reporting on Energy Secretary Steve Chu’s statements in 2008 that the cost of American gasoline needs, and should, double to equal what is paying paid in Europe. That would be $8.00/gallon.

I am absolutely stunned at the number Obama apologists that permeate the media and report on anything and everything other than the policies of the current administration. These are serious issues. The price of gold passed $1500.00/oz. this past week. That is just a small sign of the economic trauma that this nation will face unless it gets some sanity to its monetary and fiscal policies.

At the end of the day, we are faced with an administration that still treats global warming as a religion. They are internationalists that do not believe in doing what is best for this nation. They are acting as fanatics dedicated to environmentalism and their perception of social justice. The economic well being of the country is secondary, and they have a huckster in the White House fooling the public.

Obama has a great smile, a lovely family, and is a wonderful speaker…and thinks that spoon full of his Obama sugar will make his medicine go down easy with the public. Don’t be fooled. You will see economic turmoil like you have never seen your lifetime.  There's a hurricane a-comin'.  Pay attention folks.

Perilous Debt

As the country is about to enter a period of extended debate on the virtue, or lack thereof, of raising the national debt ceiling, people don't really understand how precarious of a position the United State is in financially. Those in my age group are used to  up and down swings in the economy. There is always a recovery. This time it’s different. Unless the country gets its fiscal house in order, we are in deep, deep trouble. Recovery is not possible if we keep going in the same direction. There will be some movement, but to get to where we were before…it ain’t gonna happen!

The amount of debt facing the country is staggering. It is beyond comprehension. I think maybe Barack Obama may be beginning to understand what we are facing as I am hearing at least some change in his rhetoric. Not enough. His policies are still questionable. His Secretary of Energy, Steven Chu, said in 2008 that the cost of gas in the United States has to be as high as the cost of gas in Europe. That would put our gas at $8.00/gallon. Can his advisers really be that stupid? Yes, they can. This is the global warming crowd. They could care less about you.

Here’s the deal. Whether we like it or not, inflation is here. It is all around us, and is just getting going. Right now oil trades in dollars. If our debt is not brought under control, there are movements afoot to change the currency in which oil is traded to either a new world currency, or a basket of other currencies. If that happens, folks, the cost of gas will double over night, if not triple. Erosion of the value of our currency is dangerous, and it is real. The world will move to protect the value of its hard assets, and the result will be to bankrupt our nation. This isn’t a phony danger. It is a real danger. I think Obama is getting scared, and quite frankly, so am I.

Gold has reached almost $1500.00/oz. THAT, my friends, is inflation. And it still has a ways to run. Gold and other commodities, including oil, are hedges against inflation. If people think inflation is coming…the price of commodities will continue to skyrocket. In the short run, there will be fluctuations, but the long term trend is up and up. When mainstream investment advisors are advising clients to invest in art, real estate, jewelry, you know we are in trouble. A jeweler friend of mine told me the cost of diamonds is going through the roof. He can sell his current stock with the requisite markup. The problem is he can’t afford to buy stock to replace it at the cost that he is selling his current stock. He has to raise his prices fast and furious.

That is how the government intends to pay the debt…devalue the currency. And imports into this country, like oil, will continue to skyrocket. The debt is then paid by the inflation, which is a tax of staggering proportions on every American. All the while, the Federal Reserve will continue to tell you there is no inflation…and it’s their intent to maintain a strong dollar.

Of course, to do that, they would have to raise interest rates…a lot!! Americans don’t understand how high interest rates may have to go over the next few years to curb the inflation. If you think you can’t get a loan now, just wait.

One way or the other, we as individuals and a nation are going to be facing a lot of pain as we try to clean up the mess our government has given us. There is no free lunch. Everybody will pay through decreased entitlements, increased taxes, and inflated prices. There is no simply taxing the rich. The cost of a gallon of milk or a loaf of bread or a gallon of gas hurts the poor the most. It is the ultimate regressive tax.

The good news is that there is hope. If we do Mark’s three things to recovery….we can survive what is coming with a growing economy that will help pay that nasty debt off.

1) Get tough with China on allowing its currency to float.

2) Drill here. Drill now. And build infrastructure for new energy in a planned manner. Nuclear, wind, solar, geothermal, natural gas, clean coal and hydrogen should cut to the head of the line.

3) Get the EPA off of our backs. It has cleaned up the air and our rivers. It’s now devising a way to charge for air!

I keep talking, but nobody is listening. Help me!!!!!!!!

You Paid What for Gas?

How’s that $3.80/gallon working out for you? Over the past several days gas has been going up ten to twenty cents per day right in front of our eyes. The station located at the corner of Tippecanoe Road and Rt. 224 has been going up sometimes twice each day.

The amazing thing is that the news media seems to be ignoring the story. They mention it, but almost in a ho hum sort of way. Remember 2008, during the Bush years? It was the headline night after night after night after night…and all due to Bush’s chummy connection to the oil companies. Of course, President Obama has absolutely nothing to do with the problem now. So why make a major issue out of it and cause him trouble? Never mind that higher energy prices are exactly what he wants to force the evil Americans to conserve energy and stop that horrible global warming.

So where are these high prices coming from? First, you need to know there is no oil shortage in the world today. It is awash in oil…everywhere!!! Prices are being driven by a number of different factors.

1) Trouble in Mideast: Do you think? Trouble in Egypt is one thing. Trouble in Libya, Bahrain, and Yemen is another. Throw Saudi Arabia into the mix, and you got a major problem.

2) A Weak Dollar: A weaker dollar causes commodity prices priced in dollars to go up as other currencies are used to purchase commodities also.

3) Quantitative Easing by the Federal Reserve: Hand in hand with a weak dollar has been the infusion of hundreds of millions of dollars into the economy by the Federal Reserve. All of that money has to land someplace. That someplace is commodities as investors look to purchase hard assets in anticipation of the coming inflation that is already here but that the Fed says doesn’t exist.

4) Speculators: Those rising oil prices reported on television are actually future prices. Speculators actually buy barrels of oil to be delivered to them sometime in the future betting the cost of oil will continue to go up. Sounds easy except unless they sell it prior to the futures date, these folks actually have to take possession of the oil! The problem is many of them don’t have the capacity to accept any oil shipments, and those that do are all filled up. Much of the oil is sitting around in tankers waiting to be delivered somewhere…anywhere.

That, of course, means nothing to us who are paying through the nose. The problem is that the recovery in the economy, such as it is, is fragile. We cannot sustain $4.00/gallon gasoline, and it is most likely headed higher than that. Our economy is fragile at best. It may have been derivative securities that blew up the economy in September of 2008, but it was $4.00 gas that lit the fuse and is ultimately the root of all of the economic problems in the United States today…period…end of discussion. This is the ultimate tax on Americans, and we all pay it regardless of our economic status or income.

Here are the solutions to the high gas prices…and to our economic woes:

1) Quit looking weak and timid in the Mideast. Stand up to these bastards and tell them what for. Quit bowing and apologizing to these thieves and misogynists.

2) Begin to raise interest rates. It may be shocking at first, but ultimately it will strengthen the dollar and lower oil prices.

3) Quit printing money and begin to tighten the money supply. Money will leave the commodity markets and bring oil prices back down to normal prices quicker than you think

4) Regulate speculators. If you buy a barrel of oil, you must have the capacity to accept delivery.

And finally…President Obama….don’t go to Brazil and tell them to drill for oil there. DRILL FOR OIL HERE. DRILL HERE. DRILL NOW…as well as push the development of liquefied natural gas for cars and trucks…clean coal…nuclear….solar….wind. Get the ideology out of our energy policy…such as it.

If we don’t do these things, look for a double dip recession by fall, and it will make the last one look like a walk in the park.



GE Pays No Federal Income Tax

In this time of economic austerity, I am seeing a lot of weeping and wailing, and not enough facing the issues and moving forward to fix them. The deficit continues to grow and Congress continues to tinker with “cuts.” There aren’t enough “cuts” in the entire country to take care of the budget which is beyond fixing…or is it?

I read in several different articles that General Electric paid no income taxes on a profit of $4.5 billion. How did dey do dat? The easy answer is Jeff Imelt, GE’s illustrious chairman, has his head so far up Obama’s ass it would take the jaws of life to pull it out. Crony capitalism is rampant in Obama’s Washington. But that is the easy answer. The truth is more systemic as corporations at all levels have successfully lobbied Washington to reduce their total share of the tax revenue pie at the expense of individual taxpayers. Fully 42% of all U.S. companies pay no income taxes. And 25% of the largest companies pay no taxes including GE and ExxonMobil.

It’s easy to jump onto the let’s tax the evil corporation bandwagon. The truth is that there any number of reasons why this happens. ExxonMobil pays no taxes in the United States, but it pays half of its net income in taxes to other countries. The tax rate in the United States is 35%. ExxonMobil operates in countries where the tax rates can approach 50%, and pays through the nose there. The US Government gives it credits for those taxes, which sops up anything that might be owed to our government. Those kinds of issues are political issues that extend way beyond simple tax policy…and should be addressed at many levels.

GE is another story. Much of GE’s income is made outside of the United States, and that income is not taxed until it is repatriated to the United States. GE also employs some of the most effective lobbyists in the country, and successfully turns green energy, for example, into tax credits promoting environmental policies being pushed by the United States government. That is one of many of its tactics.

At the end of the day, the lack of corporate taxes coming into the government is embedded in our screwball tax code. Corporations scream about level playing fields with other countries whose tax rates may be lower, but that would ring hollow if the United States were to revamp its tax code and take politics and ideology out of consideration relying purely on economics and sound business principles. There are a whole slew of alternative ways to tax in America other than an income tax. There is the VAT, a national sales tax, the FAIR tax…all of which could form the basis of a tax system that would generate more revenue, allow corporations to sell our goods overseas without having to pass on income tax costs to foreign customers, and actually tax foreign companies that come into the United States to do business. It would allow corporations to repatriate foreign reserves adding a new base of capital which could be reinvested in the American infrastructure.

Congress needs to stop belly aching and look at creative measures to solve our problems. The anti-tax right and the progressive income tax left need to shed the rhetoric, and look at some of these alternative ways to fund our government if we are to survive and escape the turmoil that was evident in Britain this past week, and other parts of Europe. All they need is the guts to do it. But don't bet the rent!

What - Me Worry? The Coming VAT Tax

You don’t have to be a math wizard or an accountant or an economist to know that sooner or later when you owe money, you are going to have to pay it back. If you spend more than you take, eventually you will go broke. We all learned that when were kids…and in our adult life as more and more of us visit the local bankruptcy court as we fend off foreclosure actions. Somebody always has to pay!!

So I have a hard time understanding what our government is doing with ever increasing deficits. Who is going to pay for all of this spending? That is a politically neutral question. There are two ways a government can pay what it owes. It can print money, devaluing the currency thus cutting what is owed by the amount of devaluation; or they can raise taxes and take what you have to pay what they owe. Those are the only two choices. There are no others.

So it is with a degree of bewilderment that I have watched the government continue to spend, spend and spend. As I watch the figures pile up, and watch Barack Obama pay lip service to deficit reduction, but continue to spend with almost drunken abandon, I wonder what I am missing? Does he really not care that he is spending us into the poor house in ways this country could not possible imagined even as few as three years ago? He can’t be that stupid?

Then while watching a morning news show today, I had an epiphany. He isn’t stupid. He is clever…and has a plan. He’s not worried about the deficit and the amount of spending that is going on because he plans on paying it back exactly using the two ways I mentioned above…devalue the currency and raise taxes.

The Federal Reserve is taking care of the currency devaluation part of the plan. It has been pouring money into the economy like a tsunami over the past two years. Are you watching food prices go up? That’s why. When money is pushed into circulation, it has to land somewhere. It has landed in commodities like wheat and corn and oil and sugar…and the prices are going up at a rate not seen since 1974.

But it’s the tax part that is interesting. Everyone agrees that something has to be done with “taxes”, whether it is to raise them or lower them or change them. Underneath all of the rhetoric looms the biggest tax hike of them all, the Value Added Tax. Republicans are for it. Democrats are for it, and Obama’s advisers have quietly given it the old wink and nod because it is a hidden tax. It is one they can raise, and you won’t know it!!!!

A VAT tax is a tax that is levied on goods as they are in being produced. Every time a nut gets screwed on to a bolt, value has been added and that value added will be taxed and paid by the company who screwed the nut on the bolt. Think of all the steps that go into making a car, from the production of steel all the way to the showroom floor where the dealership does the final prep for delivery to its customer. Think of taxes on all of those steps…and you as the consumer…don’t see it. But you as a consumer will pay for it!! It’s not like you would see a Vat tax hike like an increase in property or a sales tax, or as you are moved up into another income tax bracket. It will just seem like the price of whatever it is your buying is somehow more expensive.

It is a regressive tax…which is exactly what is needed to fix the revenue portion of government finances when more than 50% of Americans pay no income tax…and 70% of Federal income taxes are paid by the top 10% of wage earners. It can’t go on like that forever. To quote Margaret Thatcher, sooner or later you run out of other people's money. With a VAT, everybody pays based on what they spend rather than what they earn.

The debate on VAT will begin in the 2012 election. The debate won't be whether there will be a VAT, but how it will be implemented. Republicans want to scrap the IRS and all of its associated costs, and mover all Federal taxation to a VAT or a FAIR Tax (Fair Tax is a national sales tax). Democrats, on the other hand, want to keep the income tax, and add this hidden tax so they can tax some more and you really won’t know it. I don’t have tell you which end of the argument I am on.

Nonetheless, it is coming. You will see it implemented right after the next presidential election. Obama knows it, which is why he has that “What? Me Worry” look on his face most of the time.

There are a lot of good things about a VAT or Fair Tax, and both are certainly worth considering if done right. On the other hand, unless there is proper implementation, it can turn into a cash cow with endless milk that you will be producing.

In the meantime, watch your wallet.

Social Security Means Testing: A Bird in the Hand is Worth Two in the Bush!

In one of his first initiatives as President, George W. Bush proposed privatizing approximately 3% or less of an individual’s social security contributions to relieve pressure on the social security system in the future. These were to placed into one of three different funds operated by private investment companies but the nature and contents of the funds regulated by the government.

THE DEMOCRATS HOWLED!! People would fritter away the money, they said. They would be coming to the government for reimbursement if they lost the money, they said. Private investment firms would rob them of the contributed funds, they said.

Fast forward to 2010/11! Social Security, the single biggest entitlement for which the government in on the hook, is broke. The government smashed the lock box, stole the money, frittered it away and robbed those who contributed to it. Now the government has to put the money back...and surprise of surprises…it doesn’t have money. And now we are broke. Guess what…the government can’t bail us out. Isn't that what they were supposed to save us from?

Social Security is the single most popular program ever instituted by the government. Originally intended to supplement the retirement income of depression era pensioners who had already lived past life expectancy, everyone contributed to the system, and everyone withdrew from the system based on what one contributed.

But as in all things government, the program grew and expanded, and many people came to view social security as their total retirement, which it never was intended to be. The system was not an annuity type system, but a giant Ponzi scheme, wherein those who contributed to it previously were paid their share out of those who were contributing to it currently. That was fine as long as the baby boomers were working to support those above then. But now the triangle is reversing, making it impossible for those coming up to support that massive demographic bloat on top of them. And the government spent the money anyway…all that is in the system is a bunch of IOU’s that government can’t pay back. And the Democrats were worried about George Bush’s privatization plan? Hello!!!!

Couple that with people living into their nineties, and 75% of those eligible for social security take early retirement at age 62, instead of currently waiting for full benefits at 67. As the insurance commercial says, a bird in the hand is worth two in the bush.

President Obama’s blue ribbon panel made several recommendations to save social security, including raising the retirement age to 70, increasing contributions…and using means testing as a prerequisite to receiving any benefits. Translated, if you are wealthy, notwithstanding how much you paid into it, you ain’t getting’ a dime out.

This proposal is being supported by Republicans and Democrats alike. Here’s the problem. If the government does this, the fundamental nature of the program will change. It will just become another welfare program. They tell you now that it would only effect the uber wealthy of the country. After all, why should Bill Gates or Warren Buffett get a social security check? They obviously don’t need the money.

On the other hand, government welfare programs always experience government creep. First, it will be the very wealthy..then the wealthy…then the upper middle class…then the middle class who will be determined to be too wealthy for Social Security. Why should anyone save for their old age if they know that the social security withholding from their paycheck every other week will be going to someone else who didn't save?

Means testing for Social Security is a dangerous game. The government might just end up with a bunch of totally broke senior citizens who decided better to spend the money while they can enjoy just so long as the government will use somebody else’s money to support them. After all, a bird in the hand is worth two in the bush.