Tags: bernanke | deficit

Bernanke’s Dangerous Word Games With America’s Economy

By Andrew Packer
Friday, 24 Jun 2011 10:31 AM Current | Bio | Archive

I have to admit, I was pretty disappointed with Ben Bernanke’s second press conference on Wednesday.
 
That’s because I was playing a game of “buzzword bingo.” Imagine a bingo card, only instead of numbers, fill in each space with various forms of Fed-speak.
 
I was hoping there’d be a repeat of the word “transitory,” which the Fed chairman used heavily in his first press conference. I would have even settled for “temporary.”
 

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But that got me thinking: Words like temporary and transitory are merely government-speak for permanent.
 
Consider this: In 1898, America went to war with Spain. Congress was in a bind to raise money. These were the days after the Civil-War Era income tax had been declared unconstitutional, and touching tariffs would hurt economic growth (shocking as it seems today, we used to be an export-driven nation).
 
A new tax was needed to balance the budget resulting from the breakout of war with the Spanish Empire. So Congress turned to tax telephones, a budding new technology that only the wealthiest in the United States could afford.
                      
Thus the Federal telephone excise tax, affectionately known as the Telephone Tax, was born.
 
This so-called “temporary” measure didn’t die after the four month conflict with Spain ended. It wasn’t repealed until 1902. But it inevitably came back.
 
The tax first came back to help fund World War I and was reinstated later to combat deficit spending during the Depression. In fact, it was reinstated as part of the Revenue bill of 1932. Then it was simply reauthorized 29 times.
 
The telephone tax met a partial repeal five years ago.
 
But there’s a bigger picture than what Congress should spend its time debating (ideally it’d be a part time job, so they could spend some time as productive members of society).
 
The original tax was one cent for a 15 cent minimum telephone call. That’s a tax rate of 7 percent . . . and decreases as the cost of the phone call rises. It’s only a 1 percent tax when the call costs $1.
 
But like any temporary government measure, the only thing that was temporary about it was the low starting rate.
 
Back when the tax was partially repealed in 2006 (mostly on long-distance calls), the burden had drastically increased. "This is a good first step in alleviating consumers' telephone tax burden, which currently accounts for more than 18 percent of the average bill," stated Verizon Vice President Tom Tauke at the time.
 
In fact, the excise tax on local calls still stands. But it’s not one cent, it’s a 3 percent burden. Today, this form of the telephone tax brings in over $5 billion. Some temporary measure! No wonder millions have ditched their phones for newer technology like email and Skype.
 
Don’t even get me started about other “temporary” measures such as Social Security or food stamps.
 
It reminds me of one of Ronald Reagan’s better quips, “Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!
 
Where does that leave us as investors and with regard to the Fed’s so-called “temporary” measures? Ultimately, it means the Fed’s massive balance sheet and monetary interference isn’t going away anytime soon.

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AndrewPacker
I have to admit, I was pretty disappointed with Ben Bernanke s second press conference on Wednesday. That s because I was playing a game of buzzword bingo. Imagine a bingo card, only instead of numbers, fill in each space with various forms of Fed-speak. I was hoping...
bernanke,deficit
582
2011-31-24
 

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