A VICTORY FOR FAILURE
A majority of Americans chose to put in place the same dysfunctional government that has been incapable of addressing with a plan, let alone actually reducing, the largest national debt ever held by a government in the world, $16 trillion. They re-elected a President who, by their own account, has failed to tackle the two most important issues facing the nation: the economy and the debt. They re-elected a President who has offered nothing to reduce annual deficits exceeding $1 trillion into the foreseeable future, promising to saddle the United States with a $20 trillion plus national debt by the time he leaves office in 2016. They re-elected a President committed to implement a series of new tax increases that will reduce the capital held by the most productive elements of society and will increase unemployment and dependency on the dole. In short, on November 6, 2012, a majority of Americans produced a victory for failure.
If you have any money in savings or investments, if you are an employer, if you do not presently have health insurance, or if you want to start a business of your own, get ready. You are about to experience an array of tax increases that will take from you everything you hoped you could save, invest, or use to expand and hire new employees.
By the end of December, if the dysfunctional United States government does not produce an agreement it has been unable to produce over the last four years (a decent bet), the Bush era tax cuts embodied in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 will expire in whole or part. If allowed to expire in totality, the loss of that tax relief will produce the single largest tax increase in American history. That would increase federal income taxes that are now 10 to 15%; that are now 25 to 28%, that are now 28 to 31%, that are now 33 to 36%, and that are now 35 to 39.6%. If Congress agrees to the President’s proposal of continuing the tax relief only for those earning less than $250,000 per year, each person earning that amount and above would suffer a very sizeable tax increase, depriving those most able of hiring new people of that opportunity and forcing many in this category to lay off more workers or put them on a part-time schedule. Those earning $250,000 to $1 million per year include owners of an enormous segment of small and medium sized businesses, the entities upon which the economy depends for the great bulk of existing jobs and for most new job creation.
As the Tax Foundation make clear, expiration of the Bush era cuts would also mean an end to indexing of the alternative minimum tax, higher taxes on capital gains and dividends, higher taxes for married couples, lower child tax credits, restoration of the estate tax, a loss in certain personal exemptions and itemized deductions for wealthy taxpayers. According to the Tax Foundation’s 2011 Tax Calculator, a family of four earning a combined income of $75,000 would experience a $2,143 tax increase. A family of four earning $150,000 would experience a $4,510 tax increase. A family of four earning $300,000 would experience a $11,000 tax increase.
Lest you think those taxes are the only ones about to rise, think again and remember one word: Obamacare. The Patient Protection and Affordable Care Act is chock full of new taxes that will land atop those which occur when either part or all of the Bush era tax cuts are allowed to expire. Consider the following summary of Obamacare tax increases that I have condensed from a detailed report on those increases published by the Tax Foundation.
In 2010, certain Obamacare taxes went into effect and will continue indefinitely. Those include an excise tax on charitable hospitals which kicks in if those hospitals fail to meet certain health assessment, financial assistance, and billing and collection requirements imposed by the Department of Health and Human Services. They include a new discretionary, case by case tax increase option for the IRS if the agency deems certain lawful tax deductions and tax minimizing plans to be lacking in a substantive justification. They include a new tax on bio-fuel. They include a new tax on innovator drug companies. They include an elimination of a special tax deduction for Blue Cross/Blue Shield if less than 85 percent of premium revenues are spent on clinical services. They include a new tax on indoor tanning salons. They include reduction in tax benefits derived from health savings account, flexibile spending account, and health reimbursement accounts.
In 2013, Obamacare will raise capital gains taxes from 15% to 23.8% for households making at least $250,000. Obamacare will raise the dividend tax rate from 15% to 43.4% for those same households. Obamacare will raise the Medicare payroll tax for employees from 1.45% to 2.35% and for the self-employed from 2.9% to 3.8%. Obamacare will impose a new 2.3% excise tax on medical device manufacturers. Obamacare will increase the threshold minimum expense before medical expenses are deductible from 7.5 percent of adjusted gross income to 10 percent of adjusted gross income. Obamacare will cap flexible spending accounts at $2,500, will eliminate the tax deduction for employer-provided retirement prescription drug coverage, and will impose a $500,000 annual executive compensation limit on health insurance executives.
Obamacare promises even more tax increases in 2014 (including the individual mandate tax, imposed for failure to buy health insurance; the employer mandated tax, imposed for failure of an employer to offer health coverage; and a new tax on health insurers). Finally in 2018, the federal government will impose an excise tax on comprehensive health insurance plans.
In sum, by re-electing Barack Obama, the American people have placed the nation on an irretrievable course of decline, the dramatic effects of which are just around the corner. All sources of capital accumulation needed to restore economic growth and decrease unemployment will be taxed, retarding economic growth and increasing unemployment. The lower growth and higher unemployment will place new strains on public sector welfare programs as will Obamacare, particularly as the exchanges take on the essentially uninsurable and provide government financing for extraordinary and uncontrollable medical costs. The national debt will continue to grow by over $1 trillion a year, resulting in a national debt of in excess of $20 trillion by the time Obama leaves office. That debt will force a sizeable increase in interest payments by the federal government. At the same time grossly unaffordable entitlements will continue to be doled out without substantive reform. Pressure will mount for another reduction in the U.S. credit rating. Pressure will mount for countries like China and Japan now loaning the United States enormous sums of money to raise their rates of interest on those loans. The effect of all of this is an insurmountable fiscal and economic crisis, yielding a loss of confidence in the government’s financial commitments and in the value of the dollar.
Thus, while a majority of voters favored the existing, bloated, unaffordable, and liberty depriving federal government over a voluntarily downsized version, they will within a relatively short period of time witness an involuntary downsizing in that federal government which will impose considerable pain and hardship on millions of dependents.
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As I have explained in Restore the Republic, because the current government is unsustainable by every economic measure, it will eventually collapse as those willing to provide the services offered by the government find the economic reality of the market such that they cannot affordably provide those services; as tax revenues continue to decline atop a market that cannot bear the added tax increases; and as the number of people unemployed and dependent on entitlements mushrooms beyond the ability of the government to satisfy them. The parasite of government will soon sap the last essential life’s blood from its market host, causing both to fall into ruin. Those who re-elected Barack Obama will now join the rest of us in watching the United States fall from grace. For those like me who love this country, the loss of a nation for the sake of one man, Barack Obama, is profoundly humbling, disappointing, and agonizing.