Wall Street WARZONE

22 Reasons Your Federal, State & Local Taxes Will Keep Rising, in 2010, 2012, for Years to Come … No Matter Who’s President, Obama, Romney or Palin

by Paul B Farrell, JD, PhD
| Print | 5/6/2010

Social Security and Medicare equal $65 trillion of unfunded debt. Add in the Bush/Cheney War debt, Paulson’s TARP Plan, the Obama Stimulus, plus add in Bernanke’s estimated $23.7 trillion in secret credits, loans, writeoffs and guarantees to Wall Street’s “too-greedy-to-fail” banks … now add in the costs of the new healthcare reforms and it looks like my early ’09 prediction, “22 reasons Obama will raise your taxes soon!” is unfolding right on schedule.

Subtitled “Tax Bomb Dead Ahead: Former GAO Chief says your taxes will double” is now worth a second look, especially when you consider states and local governments are already desperately adding taxes to make up for lost property tax, sales and income revenues. The New York Times warns: “As Revenue Slump, States Look to Tax Services, From Head to Toe.” If you wonder whether we really are in an economic recovery, take a look at the bigger picture unfolding across America, at the 22 reasons all taxpayers at all levels of government will be impacted for years to come …

Imagine doubling your taxes: Yes, that’s what David Walker, the former U.S. Comptroller General and GAO chief warned on CNN: “Why Your Taxes Could Double: The federal government has spent more money than it takes in at an increasing rate. Total federal debt almost doubled during President George W. Bush’s administration and, as much as we needed some stimulus spending to boost the economy, the nonpartisan Congressional Budget Office now estimates total debt levels could almost double again over the next eight years based on the budget recently outlined by President Obama,” with our “tax bill doubling over time.” Don’t say you weren’t warned!

Debt is killing the American Dream. We’ve mortgaged our future, and now Obama’s adding a new $1.84 trillion federal deficit. That’s four times Bush’s record deficit his last year. Plus deficits over $500 billion annually for the next decade. The president’s gambling, doubling down, betting the farm, going “all in” with a huge bet that could break the bank. Is this America’s “last hand” in high-stakes poker game? More grim tax facts: A few years ago Peter Orszag, Obama’s Budget Director warned: “Balancing the budget would require a 41% cut in spending on Social Security and Medicare, a 47% cut in discretionary spending, or a 17% cut in all non-interest spending.”  

Secretary Geithner gave us an update: “The longer we wait to address the long-term solvency of Medicare and Social Security, the sooner those challenges will be upon us and the harder the options will be.” Those two trust funds already eat up more than a third of the federal budget and are increasing $2 trillion a year. Still, AARP and other lobbyists resist all benefits cuts (that affect Boomers) more than tax increases (paid by younger workers), despite a new study telling us: Medicare surpluses will run out in 2016, Social Security by 2037, both earlier than previously estimated. Together they account for roughly $80-to-$120 trillion in unfunded liabilities, with Medicare 80% of the total … and please note, America’s debt now exceeds the $50 trillion GDP of all economies in the entire world!

Wake up, you’re in denial, the “tax bomb” is dead ahead

Still, most Americans are in denial. We want to believe Bernanke’s recent optimism about a recovery this year … recent new securities offerings …. plus investor sentiment got a big boost since March from that 30% market gain … many believe we’ve hit bottom … it’s not a sucker’s rally, not a dead cat bounce in a secular bear … then we hear corporate insiders are selling their stock … still, we’re in denial. So please listen: Excessive debt virtually guarantees your taxes are going up, way up. But how much debt will drive the demand increased taxes? In March of 2008 when it looked like a McCain vs. Clinton contest we wrote an earlier challenge: “10 Reasons the New President Will Raise Your Taxes.” We saw this coming, knowing that it did not matter who got elected, Bush left a massive pile of debt.

But let’s go back even further, to 2005 when we started surveying America’s burgeoning debt as a trigger for a coming meltdown. The Dow was roughly 10,000. It peaked at 14,164 in October 2007, in spite of the obvious warning signs. Get it? Our average Main Street investors saw the global meltdown coming nearly three years before it happened. In fact, it was quite obvious to 86% of our readers back in 2005. But not to a greedy Wall Street and Reaganomics-obsessed Washington. They were in total denial into 2008 (… and are back there again in 2010!).

So we researched, updated and reprioritize 22 debt/deficit areas that will push us over the edg and double our taxes, as Walker predicts. There’s a perfect storm dead ahead: Any one of the 22 could trigger the dominoes cascading into a black hole, demanding higher taxes, triggering the “Great Depression 2” we’ve discussed often. Unfortunately, most politicians are in denial, refuse to see the longer-term, the bigger picture. So please take charge, be prepared:

1.   Federal budget deficits/debt:  Federal debt now $11.5 trillion. Add $1.4 trillion this year. That’s almost 100% of GDP.
2.   Social Security unfunded debt:
 No longer a political ‘third rail.’ No choice: We must raise taxes, or cut benefits.
3.  Medicare unfunded obligations:
 Unfunded after 2016, $65 trillion by 2041, consuming 100% of tax revenues by 2075.
4.  Health care insurance liabilities

Costs rising at double the inflation rate. 47 million uninsured. Obama plan’s universal coverage of this mega-$2.5 trillion business. Can we trust insurers sudden offer to help?
5.  Military defense budget costs

Budget $662 billion. Add veterans affairs, Afghan, Iraq: $1.45 trillion 55% of budget.
6.  Homeland Insecurity risks:
 Ports, chemical plants, borders at risk. Black Swans are lurking; with unpredictable mega-buck consequences.
7.   Real estate/mortgage losses.  Global real estate from $40 to $70 trillion in 5 years. Total global wealth lost since 2007, $50 trillion. US Mortgages shot from $7 to $14 trillion in 8 years, now down $6 trillion, with 20% worth less than the mortgage.
8.   Peak oil and energy alternatives.
 Oil’s soon declining. Extraction costs will exceed sale price. Nuclear energy cost: $75 trillion. Coal’s dirty. Wind, biofuels, costly. 
9.   Cap and Trade.
 Tax fossil fuel emissions will increase energy costs. But it won’t change much. China won’t stop. So population grows, with demand and global warming.
10.   Foreign trade deficits.
 Annual deficits continue hovering around $600 billion. Foreigners buy 70% of our debt. Many convert to equity: Today foreigners own a net value of $2.5 trillion in America.
11.   Corporate pensions.
Two-thirds of them are under-funded. Taxpayers cover losses in Pension Benefits Guarantee Corporation, also under-funded by $500 billion.
12.   Local government pensions:
 Latest estimates of retiree benefits and healthcare costs now called a “$2 trillion hole.”
13.   Weak US dollar.
US foreign debt nearly equals our $15 trillion GDP; China’s replacing dollar reserves.
14.  Personal savings debt.   We’re consumers. Our savings rate dropped from 8% in 1980 to zero last year. Only 30% save enough to retire. And yet, economists warn increased savings would slow economy recovery. They want consumption.
15.  Credit card & consumer debt.
 Consumer debt now at $2.5 trillion. Personal bankruptcies rising. Still, we’re card addicts. And card companies are stealing from us.
16.  Fanny Mae/Freddie Mac.
 They’re owners of $5.5 trillion in mortgage debt, half the nation’s total, with foreclosure rates at historical record highs.
17.  War on drugs.
Drug addiction in America plus our misguided unwinnable supply-side wars-on-drugs in Mexico, Afghanistan, all over the globe, costs hundreds of billions annually. Worse, our domestic demands are increasing the total costs.
18.  Shadow banking system.
The Fed and Treasury prefer secrecy with loans and credits now over $5 trillion. Auto and insurance companies now getting money.
19.  Democracy by Lobbyists. Forget socialism, capitalism, democracy. America is run by 42,000 lobbyists. It’s “Washington’s Biggest Business” controlling all politicians.
20.  Class gap widening.  
CEOs salaries vs. workers pay rose from 40:1 in 1980 to over 400:1 before the meltdown, while inflation-adjusted pay of workers fell.
21.  International credibility.
With friends and enemies, our war/torture was costly.
22.  What did we miss?
Resources, tech, educational, environment, jobs, you pick!

New taxes are inevitable at this level of debt, after a generation of wild-spending Reaganomics, Bush/Cheney war debt and now out-of-control Obamanomics and Bernankonomics spending. Add up your scores, six points for each of these tax-creating debt areas. What’s your total score? Add comments and tell us your opinions about the coming “tax bomb” that will double local, state and federal taxes, as former GAO chief David Walker warned in 2008?  Can we stop it? Is this the last gamble before the “Great Depression II?” Is the president doubling down in a high-stakes poker game, betting the farm, going ‘all in,’ gambling on your kids future, with a bet that will break the American Treasury?

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