I spent an excessive amount of time last evening pouring over the new Obama budget to the point that it became obvious to me that I could really use some sort of hobby.
My opinions about the economy and markets going forward are pretty well known if you’ve read anything I have written during the past 5 years. I believe we’re on a very familiar path if you have any knowledge of the travails of the Japanese economy going back the previous 20 years. Our economic future over next 10 years was going to be challenging enough and it is my concern that any growth at all will be extremely difficult to achieve with the enormous debt burden that’s still being carried by consumers and corporations, and now the staggering amount being taken on by local, state and federal governments. Paying interest on that debt as well as making principle payments does nothing to benefit the current moment in time nor help build for the future. It simply pays for the past and equates to a dead body we’ll be dragging behind us for the foreseeable future. The past is dead and tomorrow has yet to be born.
But if you consider some of the tax proposals in Obama’s budget it makes it almost impossible to imagine any investment being made by the people and companies who might actually have any money to invest. I know some of the comments I am going to make in this blog might anger some of my readers because it will seem as though I’m advocating giving the rich and corporations a break at the expense of the “working class”. But this comment by Senator Grassley yesterday summarizes a point I would have made in this post if he hadn’t:
“The proposed budget’s $300 billion in tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes,” said Senator Charles Grassley of Iowa, the ranking Republican on the tax-writing Senate Finance Committee.
This sort of tactic is the typical bait and switch that politicians pull on the public: pass legislation that appears to benefit the “working class” which accomplishes almost nothing and taxes the group that actually has money to spend and invest. With all the discussion of “stimulus”, this budget and the tax proposals will the biggest killer of growth for the past 100 years and maybe longer. Let’s take a simple look at just some of the proposed increases:
–Overall, a $970 billion tax increase over the next decade on Americans earning more than $200,000 and an additional $400 billion on corporations.
–Proposes to eliminate preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas.
–The top two individual brackets to revert to 36 percent and 39.6 percent, from 33 percent and 35 percent currently.
–Capital-gains and dividend tax rates would increase to 20 percent for people earning more than $250,000.
–The budget assumes the federal estate tax, which expired January 1st and was replaced with a capital-gains tax, will be reinstated retroactively with a 45 percent rate applied when married couples’ estates exceed $7 million. If Congress doesn’t act, the estate tax in 2011 will be reinstated to a 55 percent rate applied to estates valued at more than $1 million.
Truthfully, I could go on and on about this budget, but I will spare you this sort of torture and save it for myself.
My simple summary problem with this budget is that it contains literally NO reductions in discretionary spending at all (at least nothing meaningful or material) and the White House themselves project a budget deficit this year of $1.6 trillion and another $1.27 trillion deficit in 2011. And as always, the projections that estimate those deficits are the typical rosey scenarios politicians love to use.
Understand one thing…the people and companies who will NOT have $1.3 trillion available to spend or invest anymore will NOT be spending it. Period. Paragraph.
The politicians will defend the budget with talk about proposals that will create jobs and provide economic stimulus. My problem is that in capitalistic societies there are corporations and successful individuals. Not the government. And please remind yourself that all the numbers I mention above do NOT include any sort of health care mandates that may be passed or the “cap and trade” tax on energy, which might involve trillions more dollars.
This is a very sad moment in my adult life because I have seldom felt so helpless to watch a train wreck happening right in front of me with the ability to do literally nothing about it. No matter how loudly this budget gets debated in Washington, we all know too well that the Congress will pass something that looks damn close to what Obama just proposed and the president will sign it. Worst of all is that the momentum of the current move in the economy is massive and becomes more difficult to slow down or reverse every day.
And for those of you who think this blog is simply yet another example of Mike defending the “rich” and throwing the “working class” under the bus, I will share a wisdom I got from my paternal grandfather (who also gave me a first hand account of the depression throughout my ENTIRE childhood). Grandpa Gasior made it through the 8th grade and held a series of “working class” jobs until his passing.
There was a VERY wealthy man who lived only 1/4 mile from our neighborhood (His father had started a construction company that would ultimately construct nuclear power plants. He used to land his helicopter in his back yard and had a horse farm on my street with horses he’d fly around the world to competitions. Pretty heady stuff to a kid like me who could only dream of flying on an airplane someday). For reasons I don’t even remember, I made some sort of snotty comment about this guy in front of my grandfather and some derogatory comment about “rich people”. I’ll end this blog post with EXACT words Grandpa Gasior said to me about 40 years ago:
“Mikey. No poor man has never given me a job.”