December 09 oil futures hit $80 intra-day today, partly in response to a weaker dollar today. I think next summer oil will move into the high 80s and gasoline will move over $3 in most of America. At that point, Pelosi, Reid, and the clowns in the WH will probably screw the situation up even more by demanding “windfall profits” taxes on oil producers. If congress is stupid enough to enact this new tax, then oil production will drop incrementally and oil prices will move even higher in 2011 and beyond.
We need major fiscal restraint, something like the Gramm/Rudman legislation, to rein in uncontrolled entitlement spending and pork barrel spending by the democrat-controlled congress. Unfortunately, Pelosi, Reid, and the WH appear to have no interest in spending restraint and instead want to impose new middle-class sales taxes and a new value-added tax (essentially just a fancy name for a sales tax.) All federal spending has to be paid for through three forms of taxation: 1) direct taxes, including sales and VAT taxes, 2) higher interest rates, and 3) higher inflation. I’m expecting all three forms of taxation to increase in the next few years until we get rid of this dreadful administration in 2012. True prosperity will be put on hold for most Americans until then, as taxes, interest rates, and inflation all increase. Income taxes on the middle class may not increase, but Pelosi & Reid will very likely push for new “hidden” taxes on the middle class through sales taxes and a new value-added tax.
Until we get entitlement spending under control, there will be massive pressure on the Fed to continue buying mortgage debt and other low-quality debt to create dollars that can be used by institutional investors to buy treasury debt. This is the indirect way that the Fed is now monetizing the federal deficit and creating future inflation. That inflation is effectively a tax on income and financial investments to pay for uncontrolled entitlement spending. I’ve been buying stock in companies that produce hard assets, such as oil, natural gas, precious metals, and base metals, and also buying a few commodity ETFs. That’s one way to protect your hard-earned investments from the ravages of uncontrolled liberal spending programs. The GOP also needs to support spending restraint and stop attacking the democrats for political gain any time they suggest reductions in the growth of entitlement spending. We need bipartisan responsibility right now and a summit meeting among congressional leaders to develop a plan to dramatically slow the growth of entitlement spending in the next decade.
One simple but powerful step we should take to get entitlement spending under control is to apply means-testing to retirees who have already received more than they paid into the system in social security and medicare benefits. Just calculate the present value, in today’s dollars, of all social security and medicare taxes paid with a reasonable return on investment and an inflation adjustment. Then calculate the benefits received in today’s dollars, just using an inflation adjustment. Anyone who has already received more than he/she paid into social security in today’s dollars would then be means-tested and if they have enough income, their future social security benefits would be reduced or taxed more. Then do the same thing for medicare.
That’s the only fair thing to do for people under 40, because under the present tax and benefit system, higher income people under 40 are being absolutely destroyed financially by social security and medicare. Any person under 40 who earns more than about $60K is effectively an endentured servant of the United States, which now owns a large part of his income, and these young people will be getting hit with a huge negative return on investment by social security. That huge negative ROI subsidies the incredibly great deal that social security has been for many affluent seniors. I know because my late parents got that sweet deal too and I didn’t like paying for it.
Of course, we don’t hear one single congresscritter talking about the confiscatory taxes being imposed on higher income young people to pay for this super sweet deal for many affluent seniors, because congress is all scared out of their minds by the AARP and other aggressive, selfish senior lobbies. Well it’s time to change that cowardly behavior and call a summit meeting to get entitlements under control and stop these confiscatory taxes on young Ameicans, and also get cut our budget deficits back to reasonable levels.