The Ignorant Investor

I always try to avoid the doomsday scenarios that I see on the web predicting that the U.S. political economy is coming to resemble that of the average banana republic, but sometimes it's very hard:

WASHINGTON - Striving for a badly needed congressional score,
President Bush urged Congress Wednesday to pass a multibillion-dollar bill extending tax cuts for businesses and families, especially at a time of soaring gas prices.

...

"If the people have their way who want this tax relief to expire, the American people will be hit with $2.4 trillion in higher taxes over the next decade," he said.

"It would be handed over to government — that's where the money would go. It would be taken out of the economy and given to people here in Washington, D.C., to spend."

This is flat out dishonest. He knows the Congress will keep spending. Republicans have shown themselves incapable of real budget cutting. So the money is going to be spent no matter whether we have a tax cut or not. Rather than pay for operations with tax revenue, we'll just borrow it at a time of rising interest rates. Somewhere down the line someone will have to pay off those loans, and to do that the government of the future will need to raise taxes.

Continuing the current low rates of taxation on dividends and capital gains benefits the upper echelons of society, because they are the people who own stocks outside of tax-deferred accounts. So basically, everyone who has money in a tax deferred account will likely pay more tax down the road when they begin withdrawing funds because future rates will have to be higher to cover the debt. Yet another way in which the Bush Administration has stuck it to the lower and middle classes. It's a shame those people are too ignorant to realize it.

Fiscal fantasy continues to be played in D.C., and it's unlikely to change soon.