Just as individuals have to cut back on personal spending and try to come up with extra income when they overspend, governments have to occasionally do the same. Since Obama & Co. ran up the U.S. debt so much lately, some changes will have to be made in order to bring things back into balance.
Even Fed Chairman Bernanke echoed this in his speech before Congress last week. He alluded to spending in government programs, how they may have to be cut back, and how taxes may have to be raised in the future. Here's how he put it: "Tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run."
So, Obama will not only have to cut spending, he'll raise taxes, too. Our debt hasn't been this big of a percent of our overall gross domestic product since the 1950s. This is not a minor adjustment that is needed, it's a major overhaul.
Over six million jobs have been lost since the beginning of 2008. Stocks have crashed, and so has real estate.
If there's no income or less income in a household, then there are fewer taxes that the government gets. Not only is there less income but also fewer bonuses and less overtime being doled out as well, since the economic condition doesn't warrant it. As you know, there are few things taxed as highly as bonuses or overtime pay. So this is a huge loss of tax income to the government as well.
Still, corporations have income that can be taxed. That is, if they even survived this downturn and actually made money. When you consider all of the corporations that went bankrupt or lost money, then you can bet that the tax income that the government receives from corporations will be significantly less, too.
But let's get back to the individual consumer for a moment. Consumers are in a bind right now which also puts the government in a bind. Not only do families have no income or less income now, but they also don't have the typical resources they typically can reach into for help when they are in a tight situation.
For instance, their stocks have fallen off a cliff, so they don't have income from stock appreciation. They also likely don't have as much dividend income because many corporations have either cut their dividend payouts way down or cut them out completely. On top of all of this, they have realized stock losses which they can carry forward on their future taxes against future income, too.
There are few that have stock options from their corporations that are worth anything, too. So individuals can't cash those in when the company's stock has tanked so much. So their stock options from the company that they work for are toast, too.
Consumers can't even draw on the value of their personal residence. Not only did their homes not appreciate but many depreciated significantly. Not only that, but many of these consumers had fully tapped their home lines of credit before hand, too.
They also can't rely on their credit cards lines of credit. For the first time in a long while, consumers are getting letters from credit card companies saying that they are closing their accounts and reducing their credit lines.
The average credit card debt in American is between $8,000 and $9,000 per household.
So, consumers are strapped. Corporations are strapped. Therefore, the government is in a bad spot right now.
All this couldn't come at a worse time. Baby boomers are just starting to exit corporate America. When this happens, there will be a significant change in the household incomes all across America in baby boomer households.
On top of all of this, medical costs will continue to skyrocket.
To deal with all this, Obama is going to have to make significant cuts to programs in the future whether he realizes it at the moment or not. Also, he's going to need to raise personal and corporate taxes.
As you know, he's already proposed raising taxes on on wealthy Americans who make $250,000 a year or more, but now he's got his sights on corporations.
Obama plans to impose higher taxes on U.S. companies' foreign profits. He claims that he's doing it to encourage investment back in America. However, what Obama — or for that matter all Democrats — doesn't realize is that when you attempt to increase taxation when many other of their foreign competitors are having their corporate tax rates cut, it will inevitably drive jobs offshore and will have a counter effect to what Obama says he wants.
Just as we ran off the Initial Public Offering business (IPO) with Sarbanes-Oxley, we'll do it again with the raising of U.S. corporate taxes.
Get ready for an outflow of corporations out of America and into foreign countries when this taxation begins. What governments don't realize is that money and corporations are both mobile. Corporations and money both set up shop where the environment is conducive to them and to their shareholders.
This coming action from the Obama administration will force entire corporations offshore. It will force American jobs to become foreign jobs, as Americans have to pack their bags for foreign countries if they want to retain their jobs with these corporations.
In the end, it will force out individual jobs that the government would get taxes on and it will shoo away corporations that paid a ton of dollars in taxes to the U.S. government which will no longer do so once they are headquartered and organized in foreign lands.
Not only will this impact America by the companies that go offshore but it will also hurt the big corporations that choose to stay because all of the Dow stocks and the bulk of the S&P 500 stocks, have a significant amount of foreign earnings. In fact, it's where a ton of their growth and expansion is coming from these days.
So, as it cuts deeply into their profits, it weighs greatly on their earnings. As that happens, it dictates cheaper stock prices over time. This will hurt shareholders of stocks all over America in their IRAs and 401ks. Even those who don't work for any of these corporations directly but who just hold mutual funds and ETFs in their retirement portfolios of corporations that are affected will be impacted.
Many may think that I'm being all gloom and doom here and I'm just making this stuff up. If you don't believe me, then believe Steve Balmer, CEO of Microsoft.
On June 3, Balmer stated that the actions of the Obama administration in this area would "make U.S. jobs more expensive." He went on to say that, "We're better off taking lots of people offshore and moving them out of the U.S. as opposed to keeping them inside the U.S."
Balmer wasn't alone. He was recently at a Bloomberg round table with the CEOs of 10 other software companies who held the very same view! I focus on Microsoft because they employ over 95,000 people, of which over 56,000 of are in the United States. Now, imagine if Microsoft moved the remainder of their more than 56,000 employees offshore and many other companies started to follow their lead?
All of this is coming down the pike and it will absolutely wreak havoc upon the dollar. It will pull the rug out from under the dollar as the fundamentals for it turn further south.
Obama doesn't understand what Reagan understood — if you cut corporate taxation, you actually allow companies to grow and expand quicker, create more jobs and higher stock valuations, and expand companies' dividends, all of which are taxable. In the end, you end up with more dollars coming into the government, and everyone isn't taxed to death.
So, as Obama begins to take away this $190 billion tax break, look for corporations to scatter and for the dollar to continue to plummet as even more confidence is lost in America as the world's leader.
It won't just be jobs that are lost but ingenuity, creativity and many movers and shakers within our society, as well. And who wins them? Other nations that are more favorable to corporations!
Therefore, you will likely see the euro and other foreign currencies rise up against the dollar as these hideous government actions take effect.
These defecting corporations would have less and less of a need for dollars and more and more of a need for euros and other foreign currencies.
Governments are horrible when it comes to knowing what is good for corporations, but Democrats really miss the big picture here. So as long as the dems are in power, expect this new dollar-selling trend to continue.
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