SHOCK AND AWE NOT ONLY FOR IRAQIS
Veon Financial Services, Inc.
While jubilant Americans cant help but be fixated Revolutionary military operations that they have witnessed on television for the past two weeks called Shock and Awe, most are not aware that Americans are about to receive their own economic Shock and Awe.
Many forget that while Rome burned, Nero was busy deflecting attention away from the real center of action. For example, the front page of the March 8 Washington Post featured a huge picture showing the burning of Baghdad with all but five percent of the front page devoted to the war in Iraq. However, at the bottom was the bunker buster which will shatter our own field of dreams here in America.
While the house voted well past midnight several weeks ago to approve the full tax plan of $726B, the Senate cut it by half when they voted several days later. While you may think this is not a sure thing, an editorial entitled Lay off the Tax Candy that was in The Washington Post recently explained the deceptive game now being played. They said that there is some fine print in the Senate version that provides for some fancy footwork which basically gives them the ability to vote for the full amount, while making it look like they are against it.
Unfortunately, our government has not really made clear what this tax law is all about. From the extensive research I have done, I consider this proposal to be the most heinous change as it will destroy the ability of the middle class to sustain their economic power while enhancing the upper classes.
If enacted, this legislation, will deliver the final blow to the ability of Joe and Jane Average to get ahead. It should be pointed out that its title is a misnomer. This plan will not stimulate the economy but will cause much larger deficits, which will be borne by Americans as a result of the war, which is being waged. Recently at the G7 Finance Ministers meeting, Secretary Snow, who likes to snow people, basically said that this increased deficit spending could be seen as a type of capital spending that most companies do when they want to expand. If it does not work, it is not the shareholder who has lost out, it is the entire populace of America. After the $4-6T Nasdaq crash, most Americans who suffered any type of substantial loss are not looking to the market for answers.
The proposed legislation will, instead, change the ENTIRE TAX CODE OF AMERICA from a tax on income to a tax on consumption over a 10 year period. At this point in history, we are the only developed country not to have this form of taxation which means Bush is globalizing our tax laws. In other words, he is harmonizing our tax laws and system to conform to what the major European industrial countries have. In my opinion, this basically will set the platform for a global IRS. By the way, the UN has been working on these kinds of ideas for the last thirty years.
Under this Value Added Tax-VAT, every time a purchase is made, there will be up to a possible 27% tax on it. This tax could replace the tax on income, making only consumption taxable while all forms of income are tax-free. There are some countries that have a value-added tax plus a tax on income while America is the only country without a VAT and to have a tax on income.
For those who have enough savings to live off of their income, this is a windfall, but for those who have only debt with little or no savings, this will create a financial burden equal to the Israelites having to make bricks without straw.
At the heart of this plan is the elimination of tax on corporate dividends. Again, if you obtain your living from stock dividends, this will be like going to heaven. No tax on INCOMEonly a tax on what you buy. Lets look at three different sets of individuals.
First we have Old Money Harry. He has never had to have a real job because he gets his living from the family trust. All of the family assetsthe fabulous house, the cars, the summer homes, the yacht, the Mercedes and Rolls are held by the family trust, along with title to three large commercial pieces of real estate. Harry made several killings buying and selling real estate because the gains were tax-free since they were inside the family trust. The only downside is that the income from the trust is taxed. However, under the proposal to reduce tax bracketswhich is necessary in order to make the rates flat--from 38% to 21%, it wont hurt as much. Harry will have 17% more to spend. Only what you buywill be taxed, however, if you have it in a trustNO TAX. Old Money Harry will achieve growth unsurpassed under the proposed tax stimulus plan, just like the Kennedys the Rockefellers, the Mellons and anyone else with this arrangement.
Next are John and Jane Middleclass. Both have reasonably good jobs with attractive incomes. They both have advanced degrees and live in the executive home to match their rising social status. They lease a Lexus and Jaguar and think nothing of packing up and going to Vale or to the Bahamas at a moments notice. They have re-financed the house several times to add a new wing, exceptional landscaping and a pool. While they know they are basically spending everything they are bringing in, they rationalize by thinking about the rising equity in their home and how much they will be able to cash out when they retire. Unfortunately their 401ks got zapped during the NASDAQ crash.
Donnie and Susie Squeeze are twenty-five years old. Donnie served in the military and works as a mechanic for the local Honda dealer. They have three small children and Susie works part-time at the local grocery store. They are saving for a down payment on a home and hope to send their kids to college if they can afford it. Right now they are just barely making ends meet.
In order explain the proposed tax stimulus program; let us take a look at who will come out like a bandit. Old Money Harry will be able to double his assets because he has the right tools: a pile of money and a trust. He will basically pay very little tax considering his income and assets. The stock dividends will be tax free which other sources of income may be tax free, depending on if he takes advantage of the new Lifetime Savings Accounts.
Joe and Jane Middleclass will experience some drop in tax on income. However, once the proposed stealth tax is in full force, they probably will not have any tax break from the mortgage interest expense because it had to be sacrificed in order to pay for the other parts of the tax package. Since they have no savings outside of their 401ks, they wont have any benefit from the tax-free sources of income. But because they like to spend, they will pay 21-27% every time they make a purchase. There is no doubt their spending habits will change. If the economy tanks and one of them gets laid off, they might have to sell the house. If the economy is not doing well, who will buy their house and at what price?
Donnie and Susie Squeeze are about to be squished. Their tax bracket will have to rise in order to help pay for the new tax law, but since they have very little savings they really wont feel the benefit of tax free dividends and investment income. Since they are still accumulating, every time they buy a car, a dishwasher, etc, they will pay a hefty consumption tax. Unfortunately, the thought of buying a house might be out of the picture since it too will have a 21-27% tax. Depending on whether the US can stimulate the economy enough to pay for the war, they may be on the hook for the cost of war.
Lastly, it is time to examine what George Bush stands for because it appears he is trying to harmonize our tax laws with the other countries of the world. There has been no clarification let alone an announcement that the Bush Administration is changing the tax code. Why keep truth from the American people? What happened to the country that the colonists fled to from the British and European feudalistic systems?