With Tax Day still fresh in the minds of most Americans, it is perhaps an appropriate time to reflect on some of its historical underpinnings and on what the future may hold - not only for the sustainability of the present tax structure, but indeed for the looming national debt crisis and its implications for the future of the American currency and economy.
Back in 1763 Bostonians first began to use the phrase "No taxation without representation", which eventually spread throughout the 13 colonies of the time in expressing dissatisfaction with the imposition of duties and taxes by the mother country without having representation in the British Parliament. Ten years later this led to the Boston Tea Party and eventually to the American Revolutionary War. Almost 250 years on we have seen the establishment of a new political movement taking its name directly from the history books and agitating for cutbacks in government spending and largess (pork). Associated with this new movement has come a reprise on the original theme to the now "No representation without taxation".
Figures for the latest year show that 47% of the population now pay no income taxes and current trends suggest that the ratio may achieve equality (50-50) by about 2012. Will this be the tipping point for un-sustainability or perhaps 60% non-payers? The national debt, which has mushroomed in the first decade of this century now stands at a ratio of over 60% of GDP. Here it is believed that a ratio of 90% or more of GDP will prove to be a likely tipping point. However, this may be sooner should interest rates rise sharply causing larger and eventually unsustainable debt repayments.
As America lurches ever closer to a new 'preemptive' war in the Middle East (which itself will likely prove to be a tipping point towards a worldwide conflagration as other nations - China and/or Russia - are drawn in) it likewise draws nearer to the edge of a financial precipice, one from which it is uncertain to recover. Like its counterpart of two thousand years ago Rome, the Anglo-American world empire will not be vanquished by any external threat - instead the seeds of its demise sprout, are nourished and flower unwittingly from within.
So, when is the next phase likely to commence? Well, as the stage continues to be set by the seemingly invisible stage-hands, my belief is that the trigger for the economic tail-spin will almost certainly be the coming plunge in world stock-markets, led by those stateside. With both the Dow and the S&P having further to go in this bear market rally-back (after a sharp sell-off which is due to start any day now), current projections are for a rally that lasts until the last quarter of 2010 (and may even stretch into early in the new year). On a side note, the norm is for the party in power to lose seats during mid-term elections (this was the case also in 2006). However, should the markets rally late into the 4th quarter as projected, expect that they will do better than the pundits now project. On the other hand, should the sell-off in markets commence in earnest sooner, you can be sure that the mood prevailing on election day will lead to a trouncing with the loss of one or even both houses!
Here are a few web sites of interest providing further background and insights:
I.O.U.S.A.: The Movie
The Real Tipping Point: It’s The Economy, Stupid - Politics Elevated
Our debt time bomb is ready to go ka-boom Paul B. Farrell - MarketWatch
Ron Paul Ties Obama in Polls, US Polarization Grows
What's Obama Doing to Your Taxes? - Political Hotsheet - CBS News