Massive Taxation Or Massive Inflation?

I've said repeatedly (most recently here) that the road Obama and the Democrats have steered America onto -- after decades of mis-management by the entirety of the federal government -- can lead to only two scenarios, massive taxation or massive inflation.  Here's how it begins.

I've seen many economists who have warned massive inflation could happen as the result of current policies, but this is the first one that I know of who has forcefully predicted that it would happen:

The U.S. economy will enter "hyperinflation" approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates "close to" Zimbabwe's gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe's inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate."

Read the histories of Germany and Argentina for the results of hyperinflation.  Bottom line: national disaster.  Total economic carnage.  The Obama administration has already printed $1.2 trillion dollars out of thin air, devaluing the struggling dollar to fund his spending binge, and there are no signs that he'll stop there.  As we continue with a weakening dollar and foreign debt-buying skittishness, this danger will become more and more real.  I expect even more economists will start pointing this out as we get further and further into the hole.

But what about the other side of the coin - taxation?  This was one of the big campaign promises Obama ran on, wasn't it?  Surely he wouldn't go back on that promise, would he?  Mary Katharine Ham reports on major bad news there, too:

Remember when Barack Obama pledged he wouldn't raise taxes on anyone who made under $250,000? Remember when the Tax Day Tea Parties were all a bunch of nonsense because Barack Obama had yet to raise anyone's taxes? Perhaps the protesters were more prescient than they're given credit for.

While their critics were indulging in the fantasy of a liberal president with a projected $9.3 trillion deficit over the next 10 years and a hankering to socialize the health care system who resorts to something other than tax hikes to pay for it all, the tea partiers were residing in the real world. In that world, a liberal president with a $9.3 trillion deficit, looming entitlement disasters, and dreams of creating a universally crappy but expensive health care system, floats a value-added tax. This is what "fundamental tax reform" might look like under a Democratic Congress and president:

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

The White House claims in the story that a VAT is "unlikely to be in the mix" for paying off Obama's health care costs, but if personnel is policy, we should be afraid:

Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book "Health Care, Guaranteed." Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT.

Fed Chairman Paul Volcker has also endorsed Yale professor Michael Graetz's suggestion that a 10-14-percent VAT would exempt families making under $100,000 from the income tax and lower rates for others as "a sensible plan for reform."

But aren't conservatives big advocates of a national sales tax?  Yes, some are, but only by itself.  The problem with Obama's plan is that he'll stick the VAT on top of the current income tax system:

Emanuel argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments...

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.

Remember, this is an additional 25% on top of the income tax you already pay!  Ham gives us the real-world warning:

Remain extremely skeptical, folks. No matter how much lovely alliteration Obama uses to describe this plan, it's just another pathway into your wallet for the federal government. It's just another source to tap for revenue when they're unwilling to make "tough choices." It will go up and up, and the relief the nation sees on the corporate income tax or the income tax as a trade-off will be precious little in the Congress we've got now.

It should also be noted that the VAT costs $3 billion just to collect in Canada, according to the National Post, on top of the added cost to every single item you buy, every day.

These little trial balloons from the White House should be a giant warning sign of things to come.  You can bet your bottom dollar -- literally -- that the Obama administration and the Democrats in Congress are polling these issues very carefully.  If there isn't an unacceptable political risk of them sucker-punching the American taxpayer with these taxes, they'll do it in a heartbeat and no one can stop them until the 2010 election.  It's a long time to hold out, but the economic future of our nation is at stake.  You have been warned.

So, will it be massive inflation, or massive taxation?  Knowing Obama's economic prowess, my prediction is both.  And it'll still be Bush's fault.

There's my two cents.


Additional Reading:
Reject The VAT, Reign In Spending Instead
Dems Consider US Sales Tax To Pay For Massive Obama Debt