The Tax Tsunami
By Jacek Popiel

This week the Federal Reserve holds its Open Market Committee meeting, and speculation is rife about how long the current policy of ultra-cheap money will be maintained.

A realistic answer could be phrased as follows: current policy will probably be maintained for a while, but in the end it does not matter all that much.

The cheap money and stimulus exertions of the current administration have had some effect in goosing up the economy, and will probably continue to support it to some degree. How much and how long is a moot point, because whatever recovery eventually occurs will be drowned in a tsunami of taxes.

This new flood of taxation will inevitably be generated by the legislative initiatives now in the works: cap and trade legislation, national health care and unrestrained deficit spending.

Let us look at each in turn.

The cap and trade legislation is a tax on the carbon emissions resulting from the use of fossil fuels. Since fossil fuels at this time provide close to 90% of U.S. energy consumption, it is equivalent to a tax on energy. As agriculture is a major energy user, it will also translate into a tax on food.

Cap and trade, in other words, will institutionalize the food and energy price spike that occurred in 2008. As a tax it will also be highly regressive, hitting the lower income segment of the population the hardest. For both reasons it will kill consumption, which accounts seventy percent of the Gross Domestic Product, making the recession permanent.

This effect will be immediate because once the legislation becomes law both energy suppliers and energy users will have to initiate the necessary adjustments immediately, so as to be ready when the program is actually implemented. Energy prices will rise to pay for the required investments and/or financial penalties.

The same will occur once the proposed health care reform becomes law. While the system may not be implemented for several years, the taxes to support it will take effect immediately. These levies will hit businesses the hardest, in particular the small businesses which are responsible for a large percentage of employment.

Owners will reduce the number of employees to the minimum, letting workers go instead of hiring and dashing any hopes of seeing current unemployment numbers go down.

Thus the main programs now being worked on in Congress will result in new taxes specifically targeting consumption and employment. To these will then be added a miscellaneous burden of taxation needed to cover the deficits currently projected into the indefinite future. Already programmed is the expiration of the Bush tax cuts, but that will not be nearly enough. More will certainly be added, possibly some version of the Value Added Tax that has already been mentioned.

The impact of the above on the economy and individual well-being will be severe.

One might consider such a scenario overly pessimistic, but it is only a linear extrapolation of policies and programs the current administration and congress appear determined to implement.

There are two main reasons why they could fail. One is a breakdown of communications and discipline within the reigning Democrat party, a failure of will in the face of the obvious consequences of their legislative goals.

The other is a wholesale taxpayer revolt.

This is not as farfetched as it may seem. The American Revolution was in great part caused by tax abuses, and the rebellious stream it embodied still runs below the surface. The increasing recourse to referendums and popular initiatives of all kind points to a growing disconnect between politicians and voters.

The political tea parties and town hall meetings of the past summer might just be steam blowing off. They can also be a portent of much deeper discontent.

Such discontent does not need outright tyranny to become prevalent. The 18^th century British government, compared to some modern states, was far from truly tyrannical. Britain already had, after all, a solid democratic tradition. Its fault was of another order.

The British lost America because the English Establishment could not countenance a challenge to its authority and to the status quo which upheld it. Our own government may suffer from a similar malady: an exaggerated belief in its own power and legitimacy, detached from the will and interests of the population. It sees itself as both self-sufficient and infallible.

The Gettysburg Address says otherwise. The American experiment still goes on, with leaders ultimately being seen as representatives of the people, not as a self-perpetuating elite.

Jacek Popiel was born in Poland and educated in Africa, Canada, and the US. His career spanned military service and international business development. He is currently a writer and his first book Viable Energy Now is available on Amazon and Barnes and Noble. For more articles and information: http://www.viableenergynow.com

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