US must do a tax increase to lower debt, say foreign investors

The Bloomberg Global Poll of investors, traders and financial analysts has returned outcomes in favor of the U.S. upping the tax rate to be able to take a bite out of the federal debt. Almost two-thirds of investors polled believe that substantial debt reduction won’t be possible without additional tax revenue, a position that runs counter to the Republican stance on how to deal with the federal deficit.

Obama needs to agree with the GOP

Before the next fiscal year starts on Oct 1, President Obama and Republicans have to agree upon deficit-reducing measures, which 60 percent of investors do not think will happen. However, an even higher percentage of respondents (70 percent) are “confident” that Congress will raise the $14.29 trillion debt limit to be able to avoid default that would send borrowing costs skyrocketing for everyone, eliminate many jobs and hurl stocks, home values and retirement savings into a financial abyss.

Investor fears are still there

After Osama bin Laden passed away, the popularity of Obama went up drastically. Still, investors are worried about what the GOP plan will do. The GOP approach to affect the national debt “significantly” was supported by most in the Bloomberg poll. Still, 55 percent admit this change will not occur without tax rises more than likely.

As it currently stands, the United States budget deficit will hit $1.1 trillion in fiscal 2012. About $1.5 trillion will be how the fiscal 2011 will end.

Nothing given out for free

Sacred cows like Social Security and Medicare-related programs, which make up over 40 percent of the federal budget, have traditionally been off limits from spending cuts. This is why so many individuals think higher taxes are the only answer.

Cutting these entitlements is a very unpopular idea. Still, it would save a ton of money for the future if they could be cut. About 20 percent of the federal spending budget is Social Security. The Center on Budget and Policy Priorities reports that this is about $707 billion annually. About $732 billion goes to Medicare and related programs, which is about 21 percent.

A different alternative can be to increase tax revenue rather than tax rates by reducing credits, exclusions and tax deductions, suggested Harvard University economics professor Martin Feldstein in a brand new York Times op-ed piece.

More of an interest rate

Bond market yields are at a 10-year low, according to Bloomberg. Several experts are worried that there will be a huge increase in interest rates since there is an inverse relationship between bond values and rates of interest. The number of investors who believe another market crisis will hit the U.S. rose from 18 to 22 percent between the last two quarterly Bloomberg polls.

Articles cited

Bloomberg

bloomberg.com/news/2011-05-13/global-investors-rebuff-republicans-in-poll-showing-2-to-1-say-raise-taxes.html

Center on Budget and Policy

cbpp.org/cms/index.cfm?fa=view&id=1258

New York Times

nytimes.com/2011/05/05/opinion/05feldstein.html

Wikipedia

en.wikipedia.org/wiki/Bond_market

Cenk Uygur on taxes and the deficit

youtube.com/watch?v=mUtVY41kWKk