It seems like our political pundits seem to be arguing about just 3 possible ways of dealing with the federal deficit.
1. Cut spending
2. And/or Raise taxes
3. And/or Hope that growth in GDP thru Quantitative Easing broadens the tax base and therefore raises more in taxes
Each political party has its own vision of which of these three strategies should be stressed the most. Being a moderate, I favor the strategy of using a combination of all three. But with the “fiscal cliff” approaching, I see the possibility of a 4th option:
4. ALLOW INFLATION TO RISE AS AN INVISIBLE TAX ON EVERYONE
All the different versions of “Quantitative Easing” have attempted to keep interest rates extremely low and this has had the effect of also keeping Inflation artificially low. But eventually Interest rates will rise and along with it inflation. In my mind if inflation rises to 5% (a level that most people have grown to be reasonably comfortable with), then this is the same as the world giving the USA a 5% discount on its debt each and every year—since we are now paying off the exact same debt with dollars that are now worth less.
And when Inflation does finally kick in, it will affect EVERYONE. The rich will see their assets diminished by 5% (or more), but even the poorest of the poor will also see their meager assets shrink by the same amount. It will also affect USA investors as well as foreign investors (AKA the Chinese) equally. Everyone will see every penny that they have in the American Dollar shrink by that amount. Not just what they earn (ie an income tax), not just what they spend (ie. a Sales tax), but also everything that they have saved (even in a tax favored accounts like an IRA or 401-K).
So my hope and prayer is that our politicians will finally get together and do something BEFORE we go over the fiscal cliff. Since if we do nothing, INFLATION will be our default solution to the federal deficit and the federal debt. And IMHO, it is the MOST INSIDIOUS. I would much prefer a combination of the first 3 that I listed above.
The poor cannot afford the devaluation of their meager assets, and the conscientious savers in IRA plans and 401-K plans will lose assets that they had been promised would be free of taxes. On the other hand, the Rich cannot hide their assets thru any loopholes because inflation steals from all equally. And its effect on the Chinese does appeal to me due to its sense of irony.
Washington is terrified with even the mention of raising taxes, but in my opinion it is all semantics. The important number for American citizens is the net amount of their paycheck left after paying taxes and their fixed living expenses. People want to know what their “variable expenses are (ie. Money left over to save or have fun with). What is really the difference between raising taxes by 10%, or having 10% inflation?? What difference does it make whether the government pays 10% of your paycheck for health care, or your employer does—the net is still the same to you?? What difference does it make if the government pays 10% of your paycheck for social welfare programs, or you tithe 10% to your Church and they provide the programs that the poor in our country really need.
The real question is one of “economy of scale” who is better qualified, experienced, and efficient to supply these needed programs—the federal government, the local government, the Church, the Insurance industry….???
This is really the big question. There are many programs that our country really needs and they MUST be paid for somehow. What really is the difference whether we pay for them thru increase in taxes, or tithe, or pay the insurance companies—it will all eventually come out of our pockets.
Most of Europe has chosen to do it thru taxes (both income taxes and VAT) that often approach 80+% to pay for most things “cradle to the grave”. We Americans like to be more self-sufficient than that, but maybe our average effective tax rate of less than 20% has some extra room for negotiations.
In the past, our Government has not been particularly efficient in over-seeing social welfare programs. But that CAN change if our politicians get their act together. Private Church groups do NOT have the mechanism available to them to raise money as the IRS does (partly because the church groups that have the most money to donate are often far removed geographically from the communities that need the funds the most.)
It is a tough call like being between a rock and a hard place, but I personally trust the Government to be more altruistic with our money dealing with medical issues than I trust Insurance companies who have an intrinsic profit motive tainting their decisions.
So for the upcoming election, I think that we start to need to look to politicians as the people we need to place our trust in to solve our nation’s problems and less as villains who in the past have wasted our money on special ear-marked projects that help very few people.
IMHO, Washington needs to & must change and higher taxes are most likely on the horizon—AND THAT IS NOT NECESSARILY A BAD THING IF IT LEADS TO A COUNTRY THAT WE CAN ALL BE PROUD AND LUCKY TO LIVE IN.
Comments
I guess that you have appointed yourself as kind of a police person for this site-- but you should read the post more clearly before making anal comments-- this post was originally and always was listed as "off-topic". Surely you have better things to do with your time.
How Monetary Policy Threatens Savings
Der Spiegel
http://www.spiegel.de/international/europe/how-central-banks-are-threatening-the-savings-of-normal-germans-a-860021.html
Inflation renders "nontaxable account" an oxymoron.
Should there "be" such a thing as a "nontaxable account"?? At all, or perhaps only within certain severe limits (ie, total individual limits, not general classifications). Yet another special incentive to consider, since special incentives have a way of turning out in the hands of creative tax accountants & others to be highly advantageous to others than those originally intended.
FWIW, I have always felt that a certain very modest amount of capital gains should be excluded from income tax (or given special treatment): the idea being that this would encourage small savers to become investors, and hence encourage a broader base of stakeholders. Above a certain amount, CG should be taxed like any other income. But I guess that is not exactly how CEOs etc see it.
quote:"Should there "be" such a thing as a "nontaxable account"?? "
This is an interesting point. But Congress can always shange the rules.
For example, we have been promised that money in a Roth IRA will never have to pay "INCOME" taxes when we finally take it out. But..... What happens if the USA follows Europe's taxing strategy and goes with a national sales tax or a VAT. Well then the money is not taxed when you "EARN" it, but rather it is taxed when you 'SPEND" it.
We must always take advantage of CURRENT tax rules, but also keep an eye open that what is passed by one Congress, can always be reversed or changed by the next Congress.
so as the Romans used to say: "Carpe Diem" but also "Caveat Emptor"