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March 26, 2010

Snapshot

Marc Comtois

The bond market continues to struggle as it tries to deal with the new health care paradigm:

Interest rates climbed in the bond market Thursday after a government debt auction drew tepid demand. Auctions Tuesday and Wednesday also saw lower demand....The auction of $32 billion in seven-year notes saw demand fall from the past two months. That means the government could have to start offering higher interest rates to attract buyers.
Michael Barone explains:
[Former CBO Director Douglas] Holtz-Eakin [explained] the bill will not lower deficits but will raise them by $562 billion over 10 years. Treasury will have to borrow that money -- and probably pay much higher interest than it's paying now.

Moreover, once the bill is fully in effect, the Cato Institute's Alan Reynolds points out, its expenses are likely to grow at least 7 percent a year -- significantly faster than revenues. At that rate, spending doubles every 10 years.

Barone also mentions the pension problem states are having. But back to the national budget. Health care is only part of the blooming deficit under President Obama:
President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.
That's including the budgetary tricks the administration used to hide the deficits in their health care program. And we've recently learned that the CBO is also predicting that Social Security will pay out more in benefits than it receives in tax revenue. Meanwhile, companies are adjusting to the new health care realities:
In the first two days after the law was signed, three major companies — Deere & Co., Caterpillar Inc. and Valero Energy — said they expect to take a total hit of $265 million to account for smaller tax deductions in the future....Nationwide, companies would take a $14 billion hit on their financial statements if all of the roughly 3,500 companies receiving the subsidies continued to do so, according to a study by Towers Watson, a human resources consulting firm.
These costs will surely affect employee compensation, which is already down in most of the country:
Personal income in 42 states fell in 2009, the Commerce Department said Thursday....Nationally, personal income from wages, dividends, rent, retirement plans and government benefits declined 1.7% last year, unadjusted for inflation.
Oh, but not everywhere:
Incomes...rose in six [states] and the District of Columbia. West Virginia had the best showing with a 2.1% increase. In Maine, Kentucky and Hawaii, increased government benefits, such as unemployment insurance and Social Security, offset drops in earnings and property values.
Then there are the rising gas prices:
Gas prices have risen $1 since just after President Obama took office in January 2009 and are now closing in on the $3 mark, prompting an evaluation of the administration's energy record and calls for the White House to open more U.S. land for oil exploration.
Anyway, back again to the federal budget. Charles Krauthammer thinks that the Obama Administration is prepping the ground for proposing a VAT (Value Added Tax) to help pay for things and "fix" these deficits.
That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion)....As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.
Change, in all of its multiple meanings, indeed.

Comments

What does David Frum say about all this?
:-)

Well, here is his wife speaking:
"We have both been part of the conservative movement for, as mentioned, the better part of half of our lives. And I can categorically state I've never seen such a hostile environment towards free thought and debate -- once the hallmarks of Reaganism, the politics with which we grew up -- prevail in our movement as it does today. The thuggish demagoguery of the Limbaughs and Becks is a trait we once derided in the old socialist Left. Well boys, take a look in the mirror. It is us now."


So, friend, which side are you on? The views expressed by Frum and his wife, or by the Cheney-loving American Enterprise Institute who fired him for saying something?
Stand up and be counted.

Posted by: Stuart at March 26, 2010 3:37 PM

The BRITS "LOVE" their VAT (and WARN us about it regularly). It goes for what passes for "universal (wait in line) healthcare and takes a hidden bite out of about every form of human activity. It also produces a large "underground" economy. But WAIT, the healthtax bill includes 16 THOUSAND more IRS agents. These libbies, they know how to get your dough.

Posted by: Bicycle Bill at March 29, 2010 11:57 AM