What do you need for an economic recovery?
1) More credit available (the ability to borrow money) so the consumer and businesses can finance the purchase of goods and services and the expansion of their businesses;
2) More jobs–that’s obvious: without work, people cannot consume;
3) Lower taxes–so consumers and businesses have more cash available.
However, the new administration with its many programs will create a deficit this fiscal year in the range of one and one-half to two trillion dollars–the highest in history. So how will this deficit be funded? You got it: higher taxes. Next year the Bush tax cuts will expire and not be extended. That means tax cuts enacted in 2001 on ordinary income, capital gains, estates, dividends, and even more–will all rise. Most Americans will see their taxes go up.
Next, there are new tax proposals floating through the halls of Congress. The latest one is called a value-added tax (VAT). This tax would be imposed on all purchases. As explained in the Washington Post: “A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer.”
Also, income taxes on incomes over $250,000 would likely be raised to the 50% level.
So when you look at all the taxes being proposed by the federal government and add to that the additional taxes being proposed by the states and cities, you can certainly see how the successful businessperson and professional could be paying a total tax of between 50 and 60% of their income in the near future.
With all these taxes, how can you expect a recovery?
Lesson: History has shown us that raising taxes deters growth and usually results in less revenue rather than more. Expect higher deficits, higher taxes, and a weak recovery, unless we get more available credit, more jobs, and lower taxes.
