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Obama tax plan + inflation = impoverishment of the middle class

The Obama deficit reduction plan, announced April 13, includes higher tax rates for the "wealthy". Wealthy, according to Obama, is anyone earning at least $250,000. Why this is "wealthy" is unclear. A $250,000 salary will certainly not get you a mansion, a yacht, a private jet, and a house full of servants.

In a high tax state such as New York or California a $250,000 salary translates into little more than $125,000 take home pay. If a person at that level has a mortgage and a few kids to put through college their "wealth" probably keeps them awake at night, lying in bed in a pool of sweat, wondering how they are going to manage. These are the people Obama wants to squeeze. But it gets worse:

The Federal Reserve has been printing money at an unprecedented rate and, as a result, the value of the dollar is falling. It is for this reason, and not because of Libyan rebels, greedy oil sheiks, or greedy farmers, that the price of a tank of gas, and your grocery bill, have been skyrocketing. When the number of dollars grows faster than the growth of the economy, each dollar is worth less.

Under the inflationary policies of the Bernanke Fed the purchasing power of $250,000 has shrunk dramatically and will continue to shrink. Maybe $250,000 constituted a "wealthy" salary once upon a time but those days are long gone.

Class war by way of the tax code is a fools game. Exhibit A in this regard is the dreaded Alternative Minimum Tax (NYSE:AMT). This was advertised as a way to force a few tax dodging millionaires to pay "their fair share". It was not indexed to inflation and it now afflicts many millions of middle class Americans. In fact, the income tax itself was originally sold as a millionaires' tax. Tax-related bait and switch, with the middle class playing the role of the sucker, is an old story in Washington.

Anyone who buys into the squeeze-the-rich policies of Barack Obama is signing up to pay rich-person tax rates in the near future. A flat income tax, or better yet the replacement of the income tax with a consumption tax, is the best tax policy.


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