The Great Tax Compromise: Creating the Perfect Future Storm

by: James Quinn

I’m a big fan of Clint Eastwood movies. Below are two of the greatest scenes in movie history, with two of the greatest, most quoted lines in history. The lines are:

“Go ahead, make my day.”


“You’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk?”

For some strange reason these two lines came to my mind as I watched President Obama announce the Great Tax Compromise of 2010. In both scenes the criminals came to their senses when confronted with Dirty Harry. Our criminal Congress and criminal president reached for the gun, because they feel lucky. We know what happens next when confronted with a .44 Magnum.

Obama and his new Republican friends agreed to add $1 trillion to the national debt in the next two years. That is 30% of our entire budget and 7% of GDP. Here are some words of wisdom on this subject, spoken a few years ago:

“Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers.” – Ron Paul

I have no issue with low taxes. I would like lower taxes. But, we’ve all become Keynesians if we agree with the “compromise” that was reached yesterday. Republicans have not kept taxes low. They’ve insured that future generations will have higher taxes so they can enjoy the good times in 2011 and 2012.

The big surprise was the 2% payroll “tax cut” for 2011. The social security tax would be reduced from 6.2% to 4.2% for one year. This will provide a tax cut of $1,000 for the average American family making the median income of $50,000. It will cost $120 billion. This is certainly an interesting idea when social security has already promised to pay out $17.5 trillion more than it will ever bring in. The Washington, D.C., politician solution to a massive entitlement liability is to make it larger, so that we can buy a new 52 inch HDTV today.

A $1,000 tax cut comes to $20 per week for the average family. Now here is where the Federal Reserve and their politician protectors in Congress and the White House get you while you are not looking. As the world realizes that American politicians have no intention of cutting deficits, the U.S. dollar will continue to weaken. This is what Ben Bernanke wants. It makes our debt burden easier to pay back while screwing our foreign lenders. The result of the weakening dollar has been a dramatic surge in oil and food prices. The average American family drives 25,000 miles per year in two cars. The average car gets 20 mpg. Therefore, the average family is using 1,250 gallons of gas per year. Gas prices are at a two year high and will go higher as the dollar weakens. The entire $1,000 “tax cut” will be utilized to pay the higher price for gas. This doesn’t take into account the much higher food prices headed down the track, along with higher cost for all the stuff we import.

The ruling elite have convinced you that the tax cut will benefit you, when the inflation they have created has actually made your poorer. Thank you sir may I have another.

The 10-year Treasury surged 16 basis points this morning to 3.08%. This is the highest level since July and is now up .68% since Ben Bernanke indicated QE2 was on the way. QE2 was supposed to reduce long term interest rates. Mortgage rates are going up, not down. Housing prices are already in free-fall again. Higher mortage rates will destroy the housing market. Obama, Bernanke and Congress have created the perfect storm. Keep partying today, for tomorrow will be painful.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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