WEBCommentary(tm) - President Obama Will Raise Taxes Soon

Protectionism is the worst strategy any nation can aspire to in this day and age because of globalization. As nation-states continue to join the UN, NATO, ASEAN, the IMF, and the WTO, we are likely to see a more strong economic interconnectedness like never before. Exports and Imports are now the life’s blood of almost every nation on the globe. Hinder this vital relationship between and among nations and watch their quality of life dwindle. Moreover, countries borrow from other countries, to prevent, oftentimes the debtor from being forced to raise taxes. But when credit defaults and recessions occur simultaneously, what else can government leaders do to raise revenue?

This brief commentary is to help those Americans short on political science and wit, but are devout voters, what to expect in the coming year-end. But all this depends on whether the democrats keeps control of both the US House and the Senate. Barring any other barriers to this, and Mr. Obama's uncertain popularity in the polls, which may drive his chances for reelection in 2012 into an impossibility, I conjecture by 2011, the democrats will have to raise taxes to meet the growing budget deficit.

Wall Street at the moment is confident, according to its continued upward trend currently, the Obama Administration is moving in the right direction politically. But the voter must know most of the trading in the market is due to the big movers and shakers. That is, mutual funds, banks, insurance companies, bond fund companies and large corporations. These are the guys who have the loot to do the gambling. They gamble, (trade) with millions and millions of dollars of other people's money and some of what is their own. However, when the market takes a turn, whether positive, upward, or negative, downward, you can bet the big-boys are behind it all.

Then too, the fact that stimulus bail-out dollars is probably fully saturated throughout the market is more than likely the reason for the upswing in investment by these large institutions. But just like with every good-turn in life there is an equal and opposite bad-turn just around the corner, no one's expectations should rule-out a tax hike in the near future. Especially the taxpayer. But why would Obama want to raise taxes when the economy is still down? Wonder no more.

This is the reason for this brief commentary, and the answer is because of what we owe to China, Japan, United Kingdom, Oil Exporters, Brazil, Hong Kong (China), Caribbean Banking Centers, Taiwan, and Russia. Although these major countries are the main group of creditors, there are at least ten more that make up the entire list of creditors who has their hand in the US government’s pockets.

As far as mid-term and long-term foreign debt, the US is indebted to bondholders in the amount of some $2 trillion. And when you factor in what we owe in Treasury Bills that amounts to $502.8 billion. Such borrowing needs to be understood, in order to apprehend, why taxes will ultimately have to be invoked. One big reason is the cost of the debt. The fact that interest on the bonds alone semiannually, is money flowing out of the country rather than invested in programs to get the country back on its feet. A more troubling problem with the current foreign debt is the fact that China's economy is slowing considerably. This could mean they will probably have to do one of three things or all three, (1) cut back on loaning money to the US to help finance US domestic operations, (2) sell their government bonds in the open market to raise needed cash to finance their own domestic operations, and (3) call for immediate payment of all US securities held by the Chinese government. Or they could do all three or at least two of the three.

But they are not the only people we owe. If such uncertainty in the US economy were to weaken the confidence of the Chinese government in the US ability to grow and manage its fiscal budget, it could have a backlash, directly coming from all our other creditors, those mentioned above and the one's not mentioned, to the sum of some three to four trillion dollars. The uncertainty in the difference in the two above figures is because of interest, (over $450 billion and does not incorporate other public debt) owed by the US government to its creditors.

This eventually could drive up interest rates and cause the Obama administration to ask the Congress to increase taxes. A risky proposition all the way ‘round, and for democrats by and large.

Now I know this is all supposition on my part and not fact. But think about our financial positioning at this moment. The economy is struggling. China's economic growth has slowed. The US savings rate, i.e. M2 money supply is still in the red. US States in America still have depressed economies. Some state officials, i.e. state governors, are even requesting another stimulus. Fiscal budgetary goals, are in limbo. If you didn't know it during Congress's last session in March 2010, conservative republicans in a floor debate in the Senate refused to vote yea on extending unemployment benefits and Cobra funding, which would have allowed the unemployed, through no fault of their own, to continue collecting unemployment benefits for another 30 days, and to continue receiving health care services throughout the month of April at least, because they [leaders in the Senate] claimed there was no way to pay for it.

This is certainly a sign we are headed for a tax hike. And this begs the question, “Will it be a progressive tax hike that will effect all Americans or progressive only for the middle and lower-class, while the upper-class continue as is?” More than likely it will be a progressive tax effecting everybody. The opportunity cost of such a negative move by the federal government will mean less to consume, even less to save than we already have, and far less to live on. With the steady climb in gasoline prices, to line the pockets of OPEC once more at the pumps, the end of the recession appears to have no end.

This is what we have to look forward to if things get any worse overseas. That is, if China decides it can't cover our losses anymore. It is sure to drag in other countries we owe and they too, feeling the panic and loss of confidence in the US dollar, will hurry to dump their bonds on world markets. This could have a downward spiraling effect on other stock exchanges, worldwide, and I think you see where I am headed.

To taxes I say, "President Obama, there may be no other way out of the pickle, other than to increase taxes, if all else fails in the coming months. But know that if you do and it spurs another recession, you may have to dip into the remainder of TARP, or begin cutting appropriations to fund the war in the Middle East, or call the troops home ahead of time. Your biggest hurdle to get over if you decide to implement such an economic strategy, is the fact that, underemployment, part-timers, and those that have given up looking for a job, the latter at least 10 million, and those who are illegal, another 5 to 10 million, who have nothing to contribute, the former aforementioned will soon join those already living in homeless shelters, due to renewed or further layoffs, because of the inimical effects tax hikes will have on investments and production." If the President and his economic advisors understands this model, yet goes ahead with a tax hike, his actions and the Congress's may spawn another global economic crisis.

To raise taxes is certain to hinder the economic recovery, even if it means getting the federal government’s fiscal house in order. Worse still, it may once more adversely affect consumer confidence.