Friday, May 15, 2009

Obama Laying the Groundwork For a Tax Hike?

We've been seeing massive amounts of money committed by the federal government since President Obama took office in January. The budget is exploding, we've got a huge stimulus package to pay for, and Social Security and Medicare are going bankrupt. I also see a couple more possibilities:

-A major health care plan. We've already heard that it could be coming this year even. Where are we going to get the money to pay for it?

-Another stimulus package. I would not be surprised if this happens as the idea has already been floated.

-Bailouts for state governments. California is in the worst shape, but many others are not far behind.

-Bailouts for commercial real estate loans and the next round of foreclosures. There is a massive amount of rate resets coming in 2010 and 2011. See the chart for more details.

So, Obama finally spoke about the economic realities we have to face yesterday.

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously.

He said it himself. We can't keep borrowing. But, he wants to keep spending, and increasing the rate of that spending. The money has to come from somewhere. There is no where else but through increasing taxes. It is coming.