The Federal Reserveâ€™s â€˜Hidden Agendaâ€™ Behind Money-Printing By: Peter J. Tanous Sep 25 2013 The markets were surprised when the Federal Reserve did not announce a tapering of the quantitative easing bond buying program at its September meeting. Indeed, its signal to the market that it was keeping interest rates low was welcome, but there may be a hidden agenda. Since it began in late 2008, QE has spurred a vigorous debate about its merits, both positive and negative. On the positive side, the easy money and low interest rates resulting from quantitative easing have been a shot in the arm to the economy, fueling the stock market and helping the housing recovery. On the negative side, The Fed accomplished QE by "printing money" to buy Treasurys, and through the massive power of its purchases drove interest rates to record lows. But in the process, the Fed accumulated an unprecedented balance sheet of more than $3.6 trillion which needs to go somewhere, someday. But we know all this. I believe that one of the most important reasons the Fed is determined to keep interest rates low is one that is rarely talked about, and which comprises a dark economic foreboding that should frighten us all. (Read more: Fed assertion of 'tight' conditions looks shaky) Let me start with a question: How would you feel if you knew that almost all of the money you pay in personal income tax went to pay just one bill, the interest on the debt? Chances are, you and millions of Americans would find that completely unacceptable and indeed they should. But that is where we may be heading. Thanks to the Fed, the interest rate paid on our national debt is at an historic low of 2.4 percent, according to the Congressional Budget Office.
Given the U.S.'s huge accumulated deficit, this low interest rate is important to keep debt servicing costs down. But isn't it fair to ask what the interest cost of our debt would be if interest rates returned to a more normal level? What's a normal level? How about the average interest rate the Treasury paid on U.S. debt over the last 20 years? (Read more: Fed in 'monetary roach motel,' won't taper: Schiff) That rate is 5.7percent, not extravagantly high at all by historic standards. So here's where it gets scary: U.S. debt held by the public today is about $12 trillion. The budget deficit projections are going down, true, but the United States is still incurring an annual budget deficit by spending more than we take in in taxes and revenue. The CBO estimates that by 2020 total debt held by the public will be $16.6 trillion as a result of the rising accumulated debt. Do the math: If we were to pay an average interest rate on our debt of 5.7 percent, rather than the 2.4 percent we pay today, in 2020 our debt service cost will be about $930 billion. Now compare that to the amount the Internal Revenue Service collects from us in personal income taxes. In 2012, that amount was $1.1 trillion, meaning that if interest rates went back to a more normal level of, say, 5.7 percent, 85 percent of all personal income taxes collected would go to servicing the debt. No wonder the Fed is worried. Some economists will also suggest that interest rates may go much higher than 5.7 percent largely as a result of the massive QE exercise of printing money at an unprecedented rate. We just don't know what the effect of all this will be but many economists warn that it can only result in inflation down the road. (Read more: Did the Fed just pop the stock market bubble?) As of today, interest rates are rising, and if this is a turning point, it is a major one. Rates in the U.S. peaked in 1980 (remember the 14 percent Treasury bonds?) so if we are at the point of reversing a 33-year downward trend, who wants to predict how this will affect the economy? One thing is clear: Based on CBO projections, if interest rates just rise to their 20-year average, we will have an untenable, unacceptable interest rate bill whose beneficiaries are China, Japan, and others who own our bonds. And if Americans find out that the lion's share of their income tax payments are going to service the debt, prepare for a new American revolution. Gartman: Leave tapering to next Fed group VIDEO BELOW http://www.cnbc.com/id/101062461
Obama On Obamacare: “We Did Raise Taxes On Some Things.” AmericansForTaxReform.org Sept. 25, 2013 "Some things" means uninsured families, med devices,flex accounts, small businesses, people with high medical bills and even charitable hospitals. During his Tuesday remarks at the Clinton Global Initiative, President Obama admitted that his health care law raises taxes: “So what we did — it’s paid for by a combination of things. We did raise taxes on some things.” “Some things” is an understatement. Below is just a partial list of Obamacare’s new or higher taxes on Americans: Starting in tax year 2013: Obamacare Medical Device Tax: Medical device manufacturers employ 409,000 people in 12,000 plants across the country. Obamacare imposes a new 2.3 percent excise tax on gross sales – even if the company does not earn a profit in a given year. In addition to killing small business jobs and impacting research and development budgets, this will make everything from pacemakers to artificial hips more expensive. Obamacare High Medical Bills Tax: Before Obamacare, Americans facing high medical expenses were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year of available data. Almost all are middle class. The average taxpayer claiming this deduction earned just over $53,000 annually. ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 - $400 per year. To learn more about this tax, click here. Obamacare Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new Obamacare cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were
allowed to set a cap.) Now, a parent looking to sock away extra money to pay for braces will find themselves quickly hitting this new cap, meaning they would have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax will especially impact middle class families. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. Nationwide there are several million families with special needs children and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families. Obamacare Super Saver Surtax: A new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This tax hike results in the following top tax rates on investment income:
*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. Obamacare Medicare Payroll Tax Increase: First $200,000 ($250,000 Married) Employer/Employee
All Remaining Wages Employer/Employee
1.45%/1.45% 2.9% self-employed
1.45%/1.45% 2.9% self-employed
Starting in tax year 2014: Obamacare Individual Mandate Non-Compliance Tax: Starting in 2014, anyone not buying “qualifying” health insurance – as defined by President Obama’s Department of Health and Human Services -- must pay an income surtax to the IRS. The Congressional Budget Office recently estimated that six million American families will be liable for the tax, and as pointed out by the Associated Press: “Most would be in the middle class.” In addition, 100 percent of Americans filing a tax return (140 million filers) will be forced to submit paperwork to the IRS showing they either had “qualifying” health insurance for every month of the tax year or they obtained an exemption to the mandate. Americans liable for the surtax will pay according to the following schedule: 1 Adult
2016 + 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085 (Delayed by Obama to 2015) Obamacare Employer Mandate Tax: If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2,000 for all full-time employees. This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3,000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). Obamacare Tax on Health Insurers: Annual tax on the industry imposed relative to health insurance premiums collected that year. The tax phases in gradually until 2018. Fully imposed on firms with $50 million in profits. Starting in tax year 2018: Obamacare Tax on Union Member and Early Retiree Health Insurance Plans: Obamacare imposes a new 40 percent excise tax on high cost or “Cadillac” health insurance plans, effective in 2018. This tax increase will most directly affect union families and early retirees, who are likely to be covered by such plans. This Obamacare tax will be levied on insurance policies whose premiums exceed $10,200 for an individual and $27,500 for a family. Middle class union members tend to be covered by such plans in states like Ohio, Pennsylvania, Wisconsin, and Michigan. Higher threshold ($11,500 single/ $29,450 family) for early retirees and high-risk professions. CPI +1 percentage point indexed.
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The markets were surprised when the Federal Reserve did not announce a tapering of the quantitative easing bond buying program at its Septem...