Wednesday, May 18, 2011

Investors says US must increase taxes

In order to make a dent in the federal debt, foreign investors believe the U.S. must raise taxes, based on a new Bloomberg Global Poll. Almost two-thirds of those polled believe the Republican party is wrong that only spending cuts will reduce the deficit by a significant amount.

GOP and Obama not in agreement

Before the next fiscal year starts on Oct 1, Obama and GOP have to agree upon deficit-reducing measures, which 60 percent of investors do not think will take place. However, an even higher percentage of respondents (70 percent) are “confident” that Congress will raise the $14.29 trillion debt limit to be able to keep away from default that would send borrowing costs skyrocketing for every person, eliminate a lot of jobs and hurl stocks, home values and retirement savings into a financial abyss.

Obama popularity does not change the truth

After Osama bin Laden died, the popularity of Obama went up drastically. Still, investors are worried about what the GOP plan will do. Fifty five percent of the U.S. investors in the Bloomberg poll did not think it would be possible to “significantly” affect the federal debt without raising taxes, although many of the investors liked the GOP approach.

In the fiscal 2012, the U.S. budget debt is expected to hit $1.1 trillion. The fiscal 2011 will end with a huge deficit too. It could be about $1.5 trillion.

Taxation, without free stuff

About 40 percent of the federal budget includes Social Security and Medicare-related programs which typically have not been considered in spending budget cuts before. This has prompted some to assert that higher taxes are the only way to make a deficit-busting difference.

Cutting these entitlements is a very unpopular idea. Still, it would conserve a ton of money for the future if they might be cut. About 20 percent of the federal budget is Social Security. The Center on Spending budget and Policy Priorities states that this is about $707 billion yearly. About $732 billion goes to Medicare and related programs, which is about 21 percent.

While touching entitlements will likely remain a pipe dream, Harvard University economics professor Martin Feldstein suggests in a recent New York Times op-ed that a better alternative might be increasing tax revenue, rather than tax rates, by limiting tax deductions, credits and exclusions.

Rate of interest goes up

There’s a 10 year low that bond market yields have hit. Bloomberg states this bad news. As there is an inverse relationship between bond values and interest rates, numerous experts fear that interest rates will become dramatically higher, a traditional result of an industry crisis. There was a rise in the Bloomberg poll in the number of investors that think there will be another market crisis from 18 to 22 percent.

Information from

Bloomberg

bloomberg.com/news/2011-05-13/global-investors-rebuff-republicans-in-poll-showing-2-to-1-say-raise-taxes.html

Center on Budget and Policy

cbpp.org/cms/index.cfm?fa=view&id=1258

New York Times

nytimes.com/2011/05/05/opinion/05feldstein.html

Wikipedia

en.wikipedia.org/wiki/Bond_market

Cenk Uygur on taxes and the deficit

youtube.com/watch?v=mUtVY41kWKk



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