The coming (and presently here) Depression

[Arne]

Obama and McCain Tax Proposals
According to a new analysis by the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, Democrat Barack Obama and Republican John McCain are both proposing tax plans that would result in cuts for most American families. Obama's plan gives the biggest cuts to those who make the least, while McCain would give the largest cuts to the very wealthy. For the approximately 147,000 families that make up the top 0.1 percent of the income scale, the difference between the two plans is stark. While McCain offers a $269,364 tax cut, Obama would raise their taxes, on average, by $701,885 - a difference of nearly $1 million.



Link: http://www.washingtonpost.com/wp-dyn...060900950.html

If you really think that a tax decrease of 1,7%, which will be financed by the Federal Reserve printing some more money and borrowing it to the government, THEREBY TAXING THE AMERICAN PEOPLE THROUGH THE NEWLY CREATED INFLATION, will turn the "Obama depression" into a "McCain economic slowdown", then you're clearly not getting the economic fundamentals here.

The Inflation Tax

All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real- the individuals who suffer most from cost of living increases certainly pay a “tax.”

Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject. Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.

Borrowing money to cut the deficit is only marginally better than raising taxes. It may delay the pain for a while, but the cost of government eventually must be paid. Federal borrowing means the cost of interest is added, shifting the burden to a different group than those who benefited and possibly even to another generation. Eventually borrowing is always paid for through taxation.

The third option is for the Federal Reserve to create credit to pay the bills Congress runs up. Nobody objects, and most Members hope that deficits don’t really matter if the Fed accommodates Congress by creating more money. Besides, interest payments to the Fed are lower than they would be if funds were borrowed from the public, and payments can be delayed indefinitely merely by creating more credit out of thin air to buy U.S. treasuries. No need to soak the rich. A good deal, it seems, for everyone. But is it?

The “tax” is paid when prices rise as the result of a depreciating dollar. Savers and those living on fixed or low incomes are hardest hit as the cost of living rises. Low and middle incomes families suffer the most as they struggle to make ends meet while wealth is literally transferred from the middle class to the wealthy. Government officials stick to their claim that no significant inflation exists, even as certain necessary costs are skyrocketing and incomes are stagnating.

The transfer of wealth comes as savers and fixed income families lose purchasing power, large banks benefit, and corporations receive plush contracts from the government-- as is the case with military contractors. These companies use the newly printed money before it circulates, while the middle class is forced to accept it at face value later on. This becomes a huge hidden tax on the middle class, many of whom never object to government spending in hopes that the political promises will be fulfilled and they will receive some of the goodies. But surprise- it doesn’t happen. The result instead is higher prices for prescription drugs, energy, and other necessities. The freebies never come.

The moral of the story is that spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer.

- Ron Paul

Link: http://www.house.gov/paul/tst/tst2006/tst071706.htm

When central banks print notes and issue credit, they increase the amount of money available in the economy, usually as a reaction to worsening economic conditions. Through a change in real money balances, this causes inflation. Financing expenditure in this way is called seignorage and the effect of increasing the money supply and causing the holders of money to pay an inflation tax is the most obvious cost of inflation.

If the annual inflation rate in the United States is 5%, one dollar will buy $1 worth of goods and services this year, but it would require $1.05 to buy the same goods or services the next year; this has the same effect as a 5% annual tax on cash holdings, provided there is 0% economic growth, or other price-reducing factors, such as efficiency-enhancing technology. With price reducing factors at play, a 5% inflation rate indicates a tax rate of higher than 5%.

Link: http://en.wikipedia.org/wiki/Inflation_tax

So in other words tax cuts that are not followed by cutting the same amount in spending can mainly be called a renaming of the tax. In this case: tax reduction in income tax, replaced by tax increase in the inflation tax.