Obama's Tax Increase on All Americans

10,000 for a candy bar
I'll never forget my first hand experience with 5,000 percent inflation. I was living in Argentina in 1989 as a missionary. We got our living stipend at the beginning of the month. It was denominated in Australes. The money had to be spent quickly, as prices would double by the end of the month. When I arrived in 1989 a candy bar (the tasty alfajor) was 100 australes. When I left in 1991 the same alfajor cost 10,000. I'll never forget how we used 100 Austral bills as toilet paper. I still have a wad of Australes an inch thick that I kept as a souvenir.

Inflation is a major back door tax on all citizens. Everyone with a bank account or a fixed wage suffers. Governments with debt love inflation because they can pay down debt with devalued currency. The recession is causing a temporary deflationary cycle, but with things starting to turn around, everyone knows that inflation is the true threat. I noticed that gas was already back up to almost 2.50. And it isn't because of oil demand. The dollar is losing value. The Chinese are getting nervous about holding so much U.S. debt. Even prominent central bankers are worried. Here is a random quote from fund manager Harry Lange at Magellen (one of my 401k funds) "In my view, that no-holds-barred approach to spending could mean that inflation will resurface as a serious problem once the U.S. economy enters a recovery phase. " And from the fund managers of Vanguard Primecap: "There are legitimate concerns about the increased moral hazard and unintended consequences that are likely to result from the various rescue plans and stimulus bills...We are also concerned that the dramatic increase in money supply may result in inflation."

How to fund a major increase in the size of government
It is completely naive to believe that President Obama can fund all his programs by just soaking the rich. I believe he thinks it can be done, but it goes against all experience. The reality is that Obama's initiatives will be paid for by everyone. Here is how:

1. Inflation will pay for much of the debt. China will not keep buying our treasuries forever. You monetize debt by selling it to the Federal Reserve. Sure, the FED buys debt all the time to maintain a stable money supply. But now it's being pressured into it for political ends.
2. The tax increase on the "rich" will miss the target and hit smack dab on the middle class. As the 2003 Bush tax cuts proved, the upper class doesn't try as hard to hide income when taxes are relatively lower. Thus, we saw a surge in the amount that the upper 10% pays in taxes because of the Bush tax cuts. Obama will reverse that trend, and the rich will go back to either hiding income or being less productive with it. The middle class will have to shoulder the burden.
3. Cap-and-trade. Regardless of the environmental merits, carbon taxes are a tax increase on all Americans. I'd even say they are regressive. There is no such thing as a tax on a company. Only taxes on people. You can tax companies all you want, but it all lands on consumers and on shareholders. (Most Americans are shareholders of some sort, whether through a company retirement fund or a 401k plan.)
   

No matter how it turns out, the pro-Obama forces will be able to claim victory because the processes I've outlined above are all very indirect. But modern liberals have always succeeded more when they take the back door approach. Who wants to hear tough talk? Americans seem to want others to pay for their benefits, so the political class has to fool them into believing that they're getting a free ride. We'll you're not. Factor into it the opportunity costs of lost freedom and innovation, and the picture is pretty bleak.