Taxes that might kill the recovery

Though it is true that taxes are needed to sustain the government and not increase deficit spending, many of the new taxes likely will kill the recovery.

Here is a list of killers of the recovery:

The Alternate minimum Tax

the 3.8% tax on interest and stock and dividend income starting in 2011

And if you live in California the 70% prepaid first quarter on estimated income.

Let us progress through these to see how they each will kill the U.S. recovery.

First of all banks are investing in Treasuries (they are covering the government deficit by borrowing from the future which decreases all wealth in the future and in the present means that they aren't loaning money to individuals or businesses or investing in the stock market because that is too risky at present).

So since banks are not loaning money to any real extent anymore that means that ALL business expansion has to come from available cash of investors. And all new jobs for the recovery must come from this real cash (not borrowed) from investors in the U.S. and around the world for a U.S. recovery to be real and sustained.

The Alternate Minimum Tax. What this tax in real terms does is to take away from those caught by it from the middle  and upper classes and to tax their gross income at a higher rate and to take away any deductions that they have. The net effect of the Federal Alternate Minimum Tax is to make it extraordinarily hard on small businesses and sole  proprietors. So I would say that this is particularly harmful to the middle class in addition to the rich. Because of the recession this will drive many in the middle class away from reinvesting in the U.S and more towards bankruptcy. During these recessionary times,  they will not be able to invest in the recovery to create new businesses and jobs to pull us more permanently out of the recession.

Small businesses power the recovery, especially job recovery after a recession so this is killing the recovery!


So, in effect all these (New) taxes will only strangle the recovery. This is a real and present danger!

the 3.8% tax on interest and stock income starting in 2011.

Although this will bring new taxes into the coffers it will also tend to cause the educated middle class and rich to reinvest in areas that are more tax free to begin with like municipal Bonds which are both state and federal tax free. So when their 3.8% is due they will only have to pay that rather than be taxed several times on the same investment. However, what this then will do is to reduce the money in stocks and other business investments and kill the recovery.

Then lastly for those of you who live in California there is the 70%  total prepaid first and second quarter estimated taxes that all businesses and individuals that have made enough money in the past year. Even though you only have to pay the last 30% in January of the following year. This is a big hit for small businesses to take. What this does in real terms is to put out of business or throw into bankruptcy any businesses or individuals who can't come up with 70% of their next year expected taxes before they earn it. This further reduces the capacity of individuals and businesses to create new jobs for those without them and further increases the possibility of a seemingly never ending recession. And this will only increase California's problem that was originally caused by greedy out of state utility companies that overcharged Californians about 10 years ago. Remember Enron? Since California couldn't legally because of our state constitution effectively recover from the billions it took to keep poorer Californians from going bankrupt when the state subsidized their utility bills then.

So to repeat all these taxes reduce the investment needed for a full recovery. They all take people who are already reeling from the recession and drive them either away from investing in businesses or stocks that will help create new jobs or they send them into potential bankruptcy scenarios which only further causes suffering for everyone. Though all these taxes may have been created with good intentions, their net effect will only keep more people unemployed and increase the recession and possibly even turn it into a depression at this point.