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US Ponzi Scheme on Edge of Finally Collapsing

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Monday, 25 Jul 2011 08:25 AM Current | Bio | Archive

I believe that the financial crisis that we are caught in is a crisis of cash flow. The solutions being put forward by Washington are, as expected, a political compromise.

I was watching Chris Wallace interview Treasury Secretary Timothy Geithner and Speaker of the House John Boehner on the ongoing budget disagreements. Wallace pushed Geithner for straight answers and got President Barack Obama’s typical type of gobbledygook.

Boehner was understandably cautious but much clearer in what he perceived to be a solution.

The solution Boehner appears to propose is a combination of budget cuts and some increase in tax revenue. Geithner's solution is to blame the Republicans. Like his boss, he has no plan.

Boehner explained (and I paraphrase here) that both large spending cuts and broadening the tax base (by closing loopholes while lowering the marginal rates) would achieve something close to a "flat tax." It would be fairer on the taxpayers and easier for the government to administer.
I would prefer a consumption tax but a "flat tax" is a step in the right direction.

However, tax is a hot political potato for politicians. One difficulty in the tax proposals thus far — even the flat tax — is that they fail to take into account the financial reality that 50 percent or so of the potential U.S. taxpayers don't — and won't — pay any income tax. In fact, there is a growing group of non-payers who increasingly get various kinds of tax credits (read as cash payments for votes) and cash equivalents such as food stamps and housing allowances. That's a lot of voters.

And even if the flat tax was applied, in one way or another, to all taxpayers, I would expect the flat tax will be subject to the same shenanigans by future Congresses as the current income tax has suffered.

The congressional perk of using every conceivable trick to use taxpayer's money to buy constituent votes and reward campaign contributors is hard to give up.

As for Obama, I can well understand why he refuses to consider any kind of tax reform as he wants — and needs — all the votes he can get.

The unions, trial lawyers, the poverty industry and all the rest who live off or gain power by governmental largesse are well rewarded for playing along. As are the church and the real estate lobbies.

And, in the big picture, it is part of the strategy to radically transform the United States. A strategy clearly detailed by Saul Alinsky in his book "Rules for Radicals.”

Assuming that, politically, Congress has the ability to close the loopholes and flatten the marginal rates, what exactly are loopholes?

As I understand, loopholes are something like "tax expenditures." If you didn’t know, the Congressional Budget and Impoundment Act of 1974 requires the Congressional Budget Office and Treasury Department to publish a list annually of tax expenditures and the forgone revenue associated with each tax expenditure. It's a tough task lately as there has been no actual budget for 800 and some days. That includes the two years that the Democrats controlled Congress and the presidency.

The Budget Act defines "tax expenditures" as the revenue losses attributable to provisions of the federal tax laws that allow a special exclusion, exemption, or deduction from gross income, or that provides a special credit, a preferential rate of tax, or deferral of tax.

It would seem that tax expenditures as defined by Congress are both loopholes and special interests.

Well, that seems simple enough.

It isn't.

The tax code is full of inconsistencies that make some things tax expenditures and some things which may effectively be the same aren’t allowed. One commentator, for example, recently pointed out that the foreign tax credit is allowed to prevent double taxation of foreign-source income. However, state and local taxes aren’t deductible and are treated as a tax expenditure even though it results in double taxation of the same income.

The United States has reached the end of the line. Hit the wall. The Ponzi scheme — called the budget and "the debt ceiling" — which has been perpetuated by Congress and a long string of presidents just can't be supported any longer.

What part of the word "ceiling" in "debt ceiling" doesn't our political leadership understand?

Boehner, as well as the Senate and the President, all talk about the absolute requirement that the debt ceiling be raised. As if it is a never-ending honey pot. In the real world outside of Washington, D.C., there may be some financial appetite for many billions of dollars of more U.S. debt but — who is going to buy trillions?

Clearly, the only time that tax reform to a flat tax and even, better yet, changing the tax system to a consumption tax, as well as to pass a balanced budget amendment is right now.

Then-Speaker Newt Gingrich failed to carry through in 1995 and look where we are. No matter what action Washington takes, the "budget" is going to be balanced one way or another.

What I do know is that although the issues of budget cuts and tax reform are complex, the solution is simple and at hand. If the debt ceiling isn’t raised, the Secretary of the Treasury, who is responsible for writing 80 million checks, and his boss the President, will have to decide what is necessary for the government to pay and what isn't. And they will have to do it out of current revenues.

We will all see soon whether Congress is going to do what is best for the United States or what is best for themselves to get re-elected. Obama has already made his choice.

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Kleinfeld
I believe that the financial crisis that we are caught in is a crisis of cash flow. The solutions being put forward by Washington are, as expected, a political compromise. I was watching Chris Wallace interview Treasury Secretary Timothy Geithner and Speaker of the House...
denis,kleinfeld,US,Ponzi,Scheme
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2011-25-25
Monday, 25 Jul 2011 08:25 AM
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