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Senator Jeff
Sessions, ranking member of the Senate Budget Committee has pointed out that
our per capita government debt is already larger than Greece’s. Per person,
our government owes over $49,000 compared to $38,937 per Greek citizen. Our
debt has just reached 101% of our Gross Domestic Product. Our creditors see
this and have quietly slowed down or stopped their lending to us. As a
result, the Federal
Reserve has been outright monetizing debt as a way to patch
things together and keep the economy on life support a little longer. There
is rapidly shrinking demand for our debt, and confidence in the dollar is
falling. This phenomenon is hidden only by the fact that confidence in all
other fiat currencies is falling faster.
None of this
seems to really alarm the administration, obviously, as they have just
released a budget that accelerates spending and borrowing. The reason the
debt and deficits plague the economy, according to this administration, is
that the American economy is not taxed enough. Therefore, hidden in the fine
print of the budget is a provision that ramps up the corporate dividends tax
rate from its current 15% to 39.6%. In addition, certain deductions and
exemptions will be phased out; an additional 3.8% Obamacare investment tax
surcharge will be tacked on, bringing the effective dividend tax rate to 44.8%
in 2013. Keep in mind, this is not just a tax on big business, this is a tax
on anyone who depends on dividend income to live – retirees will be hit
hard by these changes and dividend yielding stock prices will adjust downward
rapidly to reflect their decreased value.
Not only
this, but the Obama administration is worsening the uniquely American policy
of taxing income of US based companies earned overseas. No other country
presumes to tax globally in this manner, so it amounts to a huge penalty for
basing a company in the US. Companies have been able to manage this penalty
by deferring taxation until it is repatriated or by paying dividends. What
will happen to US based businesses with strong international ties if these
allowances are abolished as the Obama administration proposes? A massive wave
of permanent capital flight will undoubtedly cause the already high levels of
unemployment to rise.
Businesses
are struggling and failing in this economy. The government ultimately depends
on a healthy business climate to provide jobs and a tax base. It is penny
wise and pound foolish to add to business tax burden in a misguided attempt
to close the colossal gap between our government’s revenue and
spending. Rather than crippling and absorbing more of our shrinking economy,
government needs to be drastically cut – not in 10 years, but
immediately.
Those who
understand the underpinnings of the dollar and how the Federal Reserve works
have known for some time that we are on an unsustainable course, that major
chaos is in store if nothing is done quickly to reform things. Politicians
pay lip-service to reforms that never materialize or turn out to be at best
small and meaningless, or at worst actively harmful. It seems more and more
inevitable that because the necessary changes would be too inconvenient for
the elites to enact now, we will get them later Greek-style, through collapse
and chaos.
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