Taxes and the Deficit Seed of Corruption

The President presented his plan to trim the deficit Monday, and inspired this article in the process. President Obama has been attempting to find revenues for the nation’s balance budgeting effort, and the easy score would be from taxes, or rather the killing of “temporary” tax breaks for higher earning Americans. Those are the so-called Bush tax cuts, which accompanied the silly $300 checks the short-sighted economic crash test dummies in DC cooked up before President Bush left office.

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Taxes and the Deficit Seed of Corruption

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You’ll recall that those tax cuts were supposed to last for just a short time, but Republicans are saying they are still needed. Democrats have determined that they have hardly been useful to date, and that higher earning Americans can afford to help the nation balance its budget by simply going back to old standard rates. The typical Republican rebuttal to this is that these taxes also impact small businessmen and kill hiring. In his latest proposal, the President shown light on this debate, discussing the so-called “class warfare” commentary his revenue targeting has inspired. But the President notes the uber-wealthy have tax savvy (read expensive accountants), which leads to effective tax rates that are often less than the menial staff they employ. Famed billionaire and Chairman of Berkshire Hathaway (NYSE: BRK-B) Warren Buffet verified this argument in his disclosure that his secretary has a higher effective tax rate than he does (NYSE: BRK-A).

I’m on the President’s side on this one. I agree that it makes more sense for the richest Americans to support the budget balancing effort than it does for social security-check dependent senior citizens to. It is certainly not a black and white issue, though, and contributions can be found elsewhere, bit by bit, including from killing unnecessary and purported unethical projects like abortion support. But, I also want to see the oil companies like Exxon Mobil (NYSE: XOM) lose their unnecessary and unethical subsidies. If you are going to call for doing what’s right, like the president did today and like his opponents will rebut, then do what’s right.

However, keep in mind that the more items included in any legislation, only increase the difficulty in getting its passage. And the two items just mentioned, and always reported by the popular press, offer only a tiny real capital raising opportunity. For this reason, it seems clear entitlements cannot go completely unharmed. But the harm can be limited and targeted in ways that might even make more sense for today’s world. However, the President (and I) cannot justify current tax rates for higher earning Americans while snipping away at welfare and social security, especially in times like these!

Let’s see compromise and comprehensive spending reform, but while avoiding damage to economic growth and without putting our seniors on the street. It’s a challenging task, but somehow, I suspect there’s enough fat in that budget to allow for it. We can find a way to keep the effort from impacting small businessmen operating on the fringe; it would only take a little creative thought and design. Once a Reagan Republican, I’m not a fan of taxes, but let’s call a spade a spade. If you want to balance the budget at a time when the economy needs support, something I said very clearly we shouldn’t do time and again, then we have to look at this honestly. Now that we’ve given Standard & Poor’s (NYSE: MHP) the seed of corruption to play with, we have to find the monies to pay with.

The broader indexes were lower before the President spoke and are down sharply at this hour, with the Dow off 1.6%. Still, energy and health care, which would be more sensitive to the President’s speech, are down a bit more:

Relative Stocks	Monday’s % Change
(Prices measured at 2:10 PM ET)
Exxon Mobil (NYSE: XOM)	-2.4%
Chevron (NYSE: CVX)	-2.3%
Halliburton (NYSE: HAL)	-4.0%
ConocoPhillips (NYSE: COP)	-2.0%
Transocean (NYSE: RIG)	-2.7%
Noble (NYSE: NE)	-3.1%
Nabors (NYSE: NBR)	-6.0%
Baker Hughes (NYSE: BHI)	-3.3%
Aetna (NYSE: AET)	-1.5%
Moody’s (NYSE: MCO)	-1.3%
McGraw-Hill (NYSE: MHP)	-0.7%
Merck (NYSE: MRK)	-2.2%
Pfizer (NYSE: PFE)	-0.9%
MedcoHealth (NYSE: MHS)	-0.3%
Humana (NYSE: HUM)	-0.8%
Cardinal Health (NYSE: CAH)	-0.7%
GlaxoSmithKline (NYSE: GSK)	-0.5%
Bristol-Myers Squibb (NYSE: BMY)	+0.2%
UnitedHealth (NYSE: UNH)	-1.9%
WellPoint (NYSE: WLP)	-1.9%
Express Scripts (Nasdaq: ESRX)	-0.3%
Washington Post (NYSE: WPO)	-2.7%
New York Times (NYSE: NYT)	-4.8%

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