In tonight’s State of the Union message, the President will tell the American people that the rich should be taxed more to help the middle class. To do this, President Obama will raise inheritance and capital gains taxes. But in a free market, this is where investment money comes from. His tax plan will destroy capital – the life-blood of a free market. By reducing capital savings, the President’s move will place additional pressure on the Fed to create "capital" out of thin air. That means the Fed will accelerate the (virtual) printing presses and thus reduce the value of the dollar for everyone. The politicians love this approach, because they will then claim responsibility, along with the Fed, to distribute all of the newly created dollars. In the process, the market rate of interest is eliminated which is the source of malinvestment and bubbles.
Ironically, the President’s plan will actually worsen the problem of the rich getting richer and the poor poorer. When the purchasing power of the dollar is reduced by too many Fed-created dollars flooding the market, the poor are hit much harder.
If the President gets his way, his tax plan will only make our economic problems much worse. Unfortunately, long ago I discovered that economic knowledge is a rare commodity in Washington, D.C. – especially when politicians believe they have an endless supply of other people’s money at their disposal.
Tags: Ron Paul, SOTU