There was a lot of campaign rhetoric about Barack Obama's tax policy being socialist, in that it seeks to redistribute wealth among the population. The problems with that characterization are legion, but the most glaring are: (1) true socialists seek to nationalize the means of production to harness the power of industry to redistribute wealth; (2) we have a progressive tax system, meaning that the marginal tax rate increases as income increases (e.g. tax brackets); and (3) (and I'll admit this is more editorial than factual) over the past two decades we have seen an enormous concentration of wealth in the upper echelons of our socio-economic structure that has lead to a real need to "redistribute" some of that wealth to a struggling middle class. Ok, so we are agreed, Obama is not a socialist. That's not really my point here, though.
We are going to end up spending trillions of dollars trying to grease the wheels of our credit markets over the next couple of years. We are fighting two wars. Our Congress sees fit to expand spending programs every time they get the opportunity. In short, we are spending a lot of money. So where's that money coming from?
In the macro-sense, that money can come from three sources: (1) we can borrow it; (2) we can print it; and (3) we can take it from our citizens. So far we have been borrowing vast amounts of money from China, Japan, and a few oil-producing countries to finance our wars and our deficits. I don't have time to verify this, but I'd be interested to see how much of our budget is spent each year just paying interest on those loans. My prediction is that when we hit the tipping point where the interest we pay on loans from other countries begins to outgrow our budget, those other countries will stop lending us money. So what do we do then?
Well, we can print the money...and watch the value of an already shaky dollar plummet. There are pros and cons to a weak dollar, but my point of view is that the cons vastly outweigh any perceived benefits. So if we need money to finance our entitlement programs and wars and economic recovery, I would say that printing more money to fill that need is a terrible idea.
So that leaves us with the problem of taxes. No politician that raises taxes can expect to keep his job. That's why we're in this mess. The problem is that the responsible thing for us to do as a society is to pay more taxes. But nobody wants to hear that. People like to drive on our roads, attend our schools, turn on their electrical appliances, talk on their cell phones, etc., but nobody wants to bear the burden of paying for all that. However, if we just raise taxes across the board, then we can all minimize the individual pain and begin building a road to a fiscally responsible government (provided they don't just spend all the new money on new toys, which is possible).
My point here is this: Obama's tax plan, to increase taxes on those making $250k or more is not some socialist, redistribute the wealth to those who didn't work for plan. It's really only a first step in a much needed journey toward fiscal responsibility. So when you see your taxes going up, don't just give the knee jerk reaction and vote in another George Bush who will refuse to raise taxes even when he and everyone around him recognizes that it is necessary. It will hurt us in the long run much worse if we don't start paying for our government services now and just keep running up interest on overseas bonds.
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