Asset Protection Strategies, STAFF NEWS & ANALYSIS
Could U.S. Taxes Rise Hard?
By Staff News & Analysis - April 01, 2010

Investors and their advisers can only scratch their heads as they face an uncertain future for U.S. income-tax policy, including one scenario that could send levies on dividends soaring. During the presidency of George W. Bush, long-term dividend and capital-gains taxes were reduced to 15 percent. President Barack Obama, backed by many congressional Democrats, wants to raise both rates to 20 percent for married couples earning more than $250,000 a year. Further clouding the situation, if Congress fails to take any action, the old policy expires and dividends will again be treated as ordinary income and taxed at a rate of up to nearly 40 percent. Capital-gains taxes would go up to 20 percent. "No matter who is doing the planning, we're all guessing as to how high the rates might rise in the future," said Robert McKenzie, a tax lawyer at Arnstein and Lehr. Most political observers expect Congress to address the issue, although many wrongly predicted the same thing last year before estate tax rules expired without a new policy in place. The result is a state of limbo, where financial advisers can only stand back and wait for greater clarity. Tax cuts enacted in 2001 and 2003 are set to expire at the end of this year, and if Congress takes no action, all rates for individuals in all brackets will revert to pre-2001 levels. Obama and the Democrats want to extend the cuts for all but the wealthiest two tax groups. – MoneyNews

Dominant Social Theme: A concern that might lead to additional citizen unhappiness.

Free-Market Analysis: By pushing through extremely unpopular health care legislation, the Obama administration has served notice that progressivism now takes pride of place over pragmatism. It is ironic that the previous Democratic presidency of Bill and Hillary Clinton was seen as potentially a very radical one, whereas the Obama presidency was viewed by many as being middle-of-the road. It is now no such thing.

The health care bill, as we have pointed out, may portend things to come. Until the November US elections, Obama has a nearly definitive majority in the House and Senate and he has shown he is willing to use it. There is no question that if he moves fast enough and lobbies hard enough, he has a chance in the next six months to pass variants of a financial regulation package, an immigration bill and whatever else he and his circle desire, up to and including a tax bill hiking revenues considerably.

In fact, we're not sure of how all of this would work, because the health bill had the advantage of being passed by the Senate, where the Obama administration has lost its definitive edge. But if the administration can woo just one Republican to its point of view on a regular basis, great accomplishments (from their point of view) are in the offing.

Yet the American people are up in arms (metaphorically anyway) and the message Obama is now sending to literally 50 million sometimes-active US voters is that he doesn't care about their middle-of-the-road orientation or concerns.

How then does Obama propose to keep power?

There are two potential answers to this question. The first is that Obama is pursuing a larger power-elite agenda and doesn't care whether he retains power so long as he fulfills it as successfully as he can. But the second possibility is that Obama and the Democrats generally are going to try between now and the next presidential election to fundamentally change the texture of US voting patterns by somehow legalizing the votes of up to 50 million Hispanics.

We've already published an article about the recent passage of the health care bill in which we speculated that part of the Obama's administration's determination to pass it had to do with being able to extend certain health care benefits to currently uncovered workers in America either legally or illegally. We're not sure this is possible, but we wouldn't be surprised if this hadn't occurred to Obama and his brain trust.

Even a few months ago, we would have been skeptical that Obama had the will or political muscle to pursue a truly radical agenda that made use of the overwhelming political firepower at his disposal. But his determination to pass health care – and subsequent success – must be seen a sign of things to come, at least potentially. Even the tone of the Democrats has changed when it comes to contemplating additional legislation, as we can read in another article excerpt:

Sander Levin, acting chairman of the tax-writing Ways and Means Committee in the U.S. House of Representatives, said this month that he intended to take up expiration of the Bush-era dividend and capital-gains levies when Congress returns from its two-week Easter break that began last week. The lawmaker believes House Democrats back Obama's policy of boosting rates for the wealthiest investors, but said the debate would be tougher in the Senate, where Democrats hold a slimmer majority and both sides of the aisle tend to be more conservative. "We're going to have to force the issue," Levin said.

There are risks in what Obama may have in mind, far beyond mere political ones. As we pointed out in today's other article, America is already boiling as a result of the depressed economic environment and information from the Internet's alternative media. If Obama goes ahead and raises taxes in an economic environment that remains as weak as this one is currently, the resultant electoral reaction might be immense. We would think in fact reactions would go far beyond electoral consequences.

The questions we have raised in this article have no answers yet. And perhaps Obama and the power elite that stands behind him will decide to back off, but we're not seeing signs of that right now. Higher taxes and other progressive programs – especially if married to a continued poor economy and continually rising debt – is a recipe for dollar instability and virtual US insolvency.

After Thoughts

Will the US face a great realignment and perhaps some sort of de-factor European-Union-style merger, as we have asked before? Or will the situation, potentially, simply decay into a kind of ungovernable morass. If the latter scenario, admittedly a far-fetched one, were to take place, we would not be surprised to see the gradual ascension of a private market gold and silver standard and perhaps even a form of free-banking. All, therefore, would not be lost. There is always perhaps, a silver (and gold) lining.

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