Tax till you drop!

Obama’s ambitious budget was released last week and it instantly drew criticisms particularly from the business world. As wide as this budget covers, here’s why:

1. $636bn income in 10 years from limiting tax hikes, and exemptions broken down into:

• $338 billion will be coming from the expiring tax hikes implemented during the Bush administration
• 179 billlion from reduced taxed deductions made by the affluent; the 35% tax deduction will go down to 28%
• $118 billion to be received from raising capital gains tax; the current 15% rate will be raised to 20%

2. $24 billion in new revenue will be from taxing hedge fund and private equity managers at income tax rates, when it is currently treated as capital gains

3. Over 10 years, his government is also expecting a stream of $646bn from cap-and-trade emissions taxes.

4. Other plans include:

• $61 billion from repealing the last-in, first-out (LIFO) method of accounting for inventory
• $210 billion will be from international enforcement, reform deferral, other tax reform

According to one congressman, this whole budget will be a net tax increase of 1.4trillion.

Okay, let’s give credit that there will be tax cut benefits to 95% of households but taxing the remaining 5%, which probably accounts for far more than the former in tax revenues collected by the government, especially in these hard times, is not the wisest of ideas. Geithner and the rest of the Obama gang argue that these tax proposals will not be imposed until 2011, which is still 2 years from now. Yet given the kind of wealth destruction that has happened and is continuously transpiring, the plan just doesn’t make sense. If they see taxation as the only means of raising revenues, that is still perhaps be the last idea they need to tap into within the next four years, or until the economy is back to normal.

Some say it is rare that we see a president who keeps his promises. But it’s not something that calls for a celebration. For someone who has promised so much during his campaign and lifted the spirits of perhaps every single citizen, liberal and conservatives alike, his decision to make his budget all inclusive- from the economy to the highly troubled health care system- is a bit out of this world. While I understand that American health care needs to fixed, I don’t understand why it has to be juxtaposed with the financial crisis. With four years in the oval office, how about moving it to next year when things are better? We shouldn’t even let one thing slip: that the $630bn health care fund will be partly funded by the humongous and despicable tax hikes that will be imposed upon the affluent. Point 1, universal (read: government-controlled) health care system here they come. Point 2, higher taxes… seriously? Point 3, I’m sorry but this is seriously looking like a socialist system. Sadly, the mandate and hope given to him by the people is making things look a little bit better, masking the vileness of it all.

I’ll try not to make this an issue of class warfare as some have claimed (if at all I managed to stay away from that in the previous paragraph) but, admittedly he’s done quite a heck of a job instilling confidence in the American populace. But when things are in a standstill, and the bigger problem is not so much the public as it is the lack of confidence by the investors, the financial system, and the businesses, I see that the solution does not rely on the group whose spirit Obamas has successfully (or not?) lifted- the general public- but on those that fuel the growth of the economy. Maybe the financial/banking system has caused all this, maybe the investors have lost confidence in that system, and maybe the businesses have suffered lots already from that erosion of confidence but at this moment, I believe it is these groups that need to be helped not necessarily at the expense of the rest of America. The whole point is, the kind of policies that are needed now should not be solely focusing on policies that only aim to help the public. Rather they also need to include policies which don’t scream anti-capitalism, anti-business, anti-investing. Unfortunately, that is not what the liberal government that is in Washington at the moment.

Since Obama was inaugurated in January, the major indexes have plunged more than 20%. One cannot say that it’s purely based on the continuously declining state of the economy. After all, he’s perhaps the most urgent of all the actors- aiming to create solution as fast as he can to save the US from further destruction. If this is true, and I believe it is, it means that the markets are telling us only one thing: there is something (so) wrong with the policies that are coming out of Washington. Obama is perhaps the most charismatic president to emerge in America’s politics, I’ll give him that, but apparently that charisma is not working well with the investing group. It doesn’t matter how much hatred the people have towards Wall Street or every other financial institution out there because unless something pro-capitalism, pro-business, and pro-investing comes out of the Capitol, I’m not sure how America can once again shine- looked up to by the rest of the world.