The Federal Reserve’s ‘Hidden Agenda’ Behind
By: Peter J. Tanous
Sep 25 2013
The markets were
surprised when the
Federal Reserve did not
announce a tapering of
the quantitative easing
bond buying program
at its September
meeting. Indeed, its
signal to the market
that it was keeping
interest rates low was
welcome, but there may
be a hidden agenda.
Since it began in late
2008, QE has spurred a
vigorous debate about its
merits, both positive and
On the positive side, the
easy money and low
interest rates resulting
from quantitative easing have been a shot in the arm to the economy, fueling the stock market and
helping the housing recovery. On the negative side, The Fed accomplished QE by "printing money" to
buy Treasurys, and through the massive power of its purchases drove interest rates to record lows.
But in the process, the Fed accumulated an unprecedented balance sheet of more than $3.6 trillion
which needs to go somewhere, someday.
But we know all this.
I believe that one of the most important reasons the Fed is determined to keep interest rates low is one
that is rarely talked about, and which comprises a dark economic foreboding that should frighten us all.
(Read more: Fed assertion of 'tight' conditions looks shaky)
Let me start with a question: How would you feel if you knew that almost all of the money you pay in
personal income tax went to pay just one bill, the interest on the debt? Chances are, you and millions of
Americans would find that completely unacceptable and indeed they should.
But that is where we may be heading.
Thanks to the Fed, the interest rate paid on our national debt is at an historic low of 2.4 percent,
according to the Congressional Budget Office.
Given the U.S.'s huge accumulated deficit, this low
interest rate is important to keep debt servicing costs
But isn't it fair to ask what the interest cost of our debt
would be if interest rates returned to a more normal
level? What's a normal level? How about the average
interest rate the Treasury paid on U.S. debt over the last
(Read more: Fed in 'monetary roach motel,' won't taper:
That rate is 5.7percent, not extravagantly high at all by
So here's where it gets scary: U.S. debt held by the
public today is about $12 trillion. The budget deficit
projections are going down, true, but the United States
is still incurring an annual budget deficit by spending
more than we take in in taxes and revenue.
The CBO estimates that by 2020 total debt held by the
public will be $16.6 trillion as a result of the rising
Do the math: If we were to pay an average interest rate on our debt of 5.7 percent, rather than the 2.4
percent we pay today, in 2020 our debt service cost will be about $930 billion.
Now compare that to the amount the Internal Revenue Service collects from us in personal income
In 2012, that amount was $1.1 trillion, meaning that if interest rates went back to a more normal level
of, say, 5.7 percent, 85 percent of all personal income taxes collected would go to servicing the debt.
No wonder the Fed is worried.
Some economists will also suggest that interest rates may go much higher than 5.7 percent largely as a
result of the massive QE exercise of printing money at an unprecedented rate. We just don't know what
the effect of all this will be but many economists warn that it can only result in inflation down the road.
(Read more: Did the Fed just pop the stock market bubble?)
As of today, interest rates are rising, and if this is a turning point, it is a major one.
Rates in the U.S. peaked in 1980 (remember the 14 percent Treasury bonds?) so if we are at the point of
reversing a 33-year downward trend, who wants to predict how this will affect the economy?
One thing is clear: Based on CBO projections, if interest rates just rise to their 20-year average, we will
have an untenable, unacceptable interest rate bill whose beneficiaries are China, Japan, and others who
own our bonds.
And if Americans find out that the lion's share of their income tax payments are going to service the
debt, prepare for a new American revolution.
Gartman: Leave tapering to next Fed group VIDEO BELOW
Obama On Obamacare: “We Did Raise Taxes
On Some Things.”
Sept. 25, 2013
"Some things" means uninsured
families, med devices,flex
accounts, small businesses, people
with high medical bills and even
During his Tuesday remarks at the
Clinton Global Initiative, President
Obama admitted that his health care
law raises taxes: “So what we did —
it’s paid for by a combination of
things. We did raise taxes on some
“Some things” is an understatement.
Below is just a partial list of
Obamacare’s new or higher taxes on
Starting in tax year 2013:
Obamacare Medical Device Tax:
Medical device manufacturers
employ 409,000 people in 12,000
plants across the country. Obamacare
imposes a new 2.3 percent excise tax
on gross sales – even if the company
does not earn a profit in a given
year. In addition to killing small business jobs and impacting research and development budgets, this
will make everything from pacemakers to artificial hips more expensive.
Obamacare High Medical Bills Tax: Before Obamacare, Americans facing high medical expenses
were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross
income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not
only makes it more difficult to claim this deduction, it widens the net of taxable income.
According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year
of available data. Almost all are middle class. The average taxpayer claiming this deduction earned just
over $53,000 annually. ATR estimates that the average income tax increase for the average family
claiming this tax benefit will be $200 - $400 per year. To learn more about this tax, click here.
Obamacare Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax
Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new
Obamacare cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next
ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were
allowed to set a cap.) Now, a parent
looking to sock away extra money
to pay for braces will find
themselves quickly hitting this new
cap, meaning they would have to
pony up some or all of the cost with
Needless to say, this tax will
especially impact middle class
There is one group of FSA owners
for whom this new cap will be
particularly cruel and onerous:
parents of special needs children.
Nationwide there are several
million families with special needs
children and many of them use
FSAs to pay for special needs
education. Tuition rates at one
leading school that teaches special
needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per
year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This
Obamacare tax provision will limit the options available to these families.
Obamacare Super Saver Surtax: A new, 3.8 percent surtax on investment income earned in
households making at least $250,000 ($200,000 single). This tax hike results in the following top tax
rates on investment income:
Capital Gains Dividends Other*
2013+ 23.8% 23.8% 43.4%
*Other unearned income includes (for surtax purposes) gross income from interest, annuities,
royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not
include municipal bond interest or life insurance proceeds, since those do not add to gross income. It
does not include active trade or business income, fair market value sales of ownership in pass-through
entities, or distributions from retirement plans.
Obamacare Medicare Payroll Tax Increase:
All Remaining Wages
2.9% self-employed 2.9% self-employed
Obamacare 1.45%/1.45% 1.45%/2.35%
2.9% self-employed 3.8% self-employed
Starting in tax year 2014:
Obamacare Individual Mandate Non-Compliance Tax: Starting in 2014, anyone not buying
“qualifying” health insurance – as defined by President Obama’s Department of Health and Human
Services -- must pay an income surtax to the IRS. The Congressional Budget Office recently estimated
that six million American families will be liable for the tax, and as pointed out by the Associated Press:
“Most would be in the middle class.”
In addition, 100 percent of Americans filing a tax return (140 million filers) will be forced to submit
paperwork to the IRS showing they either had “qualifying” health insurance for every month of the tax
year or they obtained an exemption to the mandate.
Americans liable for the surtax will pay according to the following schedule:
1 Adult 2 Adults 3+ Adults
2014 1% AGI/$95 1% AGI/$190 1% AGI/$285
2015 2% AGI/$325 2% AGI/$650 2% AGI/$975
2016 + 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085
(Delayed by Obama to 2015) Obamacare Employer Mandate Tax: If an employer does not offer
health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an
additional non-deductible tax of $2,000 for all full-time employees. This provision applies to all
employers with 50 or more employees. If any employee actually receives coverage through the
exchange, the penalty on the employer for that employee rises to $3,000. If the employer requires a
waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period
is 60 days or longer).
Obamacare Tax on Health Insurers: Annual tax on the industry imposed relative to health insurance
premiums collected that year. The tax phases in gradually until 2018. Fully imposed on firms with $50
million in profits.
Starting in tax year 2018:
Obamacare Tax on Union Member and Early Retiree Health Insurance Plans: Obamacare
a new 40 percent excise tax on high cost or “Cadillac” health insurance plans, effective in 2018. This
tax increase will most directly affect union families and early retirees, who are likely to be covered by
such plans. This Obamacare tax will be levied on insurance policies whose premiums exceed $10,200
for an individual and $27,500 for a family. Middle class union members tend to be covered by such
plans in states like Ohio, Pennsylvania, Wisconsin, and Michigan. Higher threshold ($11,500 single/
$29,450 family) for early retirees and high-risk professions. CPI +1 percentage point indexed.
BECAUSE THERE'S A WAR ON FOR YOUR MIND