As the U.S. economy limps along, states are waking up to lower tax revenues. Which mean less money for services that state governments provide. Which leads directly to the lousy choice that the state of California faces: raise taxes or cut services? How much longer before the nation itself feels the effects of lower tax revenues?
Bob Prechter explains why it's not healthy to depend on the government to help you out when times get tough. Here are three quotes from his New York Times best-selling book, Conquer the Crash:
Chapter 32: Should you rely on government to protect you?
· p.253: Governments … spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts fall.
· p. 254: Retirement programs such as Social Security in the U.S. are wealth-transfer schemes, not funded insurance, so they rely upon the government’s tax receipts. Likewise, Medicaid is a federally subsidized state-funded health insurance program, and as such, it relies upon transfers of states’ tax receipts. When people’s earnings collapse in a depression, so does the amount of taxes paid, which forces the value of wealth transfers downward.
· p.258: The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted.
That's what Prechter predicted, and here's a headline and excerpt from a USA Today story, published May 27, 2009, that points to the fulfillment of those predictions:
IRS Tax Revenue Falls Along with Taxpayers' Income
Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago -- the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says. When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."
For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago. [emphasis added]
Would it have been smart for the U.S. government to save money while times were good and tax revenues were plentiful? Yes, it would have. But instead did it behave like most investors and homebuyers who thought that the good times would roll forever?
There's still time to protect your assets before the financial markets and the economy create more difficulties for the unprepared. Get your own copy of Bob Prechter's
Conquer the Crash and learn what else he has to say on topics ranging from whether you should invest in cash or precious metals or real estate to how to find a safe bank and what to do with your insurance and annuities.
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