Numbers can barely measure soaring debt
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Dear Mr. Berko:
How large will the deficit be for 2009? I hear all sorts of numbers, but they keep changing. Some people believe (former Vice President Dick Cheney for one) that deficits can grow the economy and don’t have to be paid off. Is this true? Our taxable income this year will be about $43,000, which places us in the lower middle-income bracket. Do you think our taxes will increase next year along with the taxes on the wealthy people making $235,000? We would also like your “buy,” “hold” or “sell” opinion on Campbell Soup. We have 53 shares at $32 and have about $1,300 to invest.
– B.R.: Kankakee, Ill.
Dear B.R.:
In August 2008, the Bush administration announced that the deficit for fiscal year 2009 would be $407 billion. At that time, Cheney was already on record as having said, “Deficits don’t matter.” Well, deficits don’t matter if you have the money and influence Cheney has.
Just two months later, in October 2008, the Bush administration predicted the 2009 deficit would rise to $610 billion. In May, the Office of Management and Budget increased the projected 2009 deficit to $1.8 trillion, and next month, the OMB may raise that number to $2.3 trillion. These numbers do not include the trillion-dollar-plus stimulus packages in tax credits, new spending and bailout money for banks, automakers and insurance companies.
Recently, the Congressional Budget Office announced government spending could total 30 percent of gross domestic product, and this is before President Barack Obama’s new health care entitlements. Federal outlays could exceed $4.3 trillion this year, which is the most unimaginable thing I can imagine.
Whether or not you believe new spending will stimulate the economy, this money must come from somewhere; it must either be borrowed or taxed from the private sector. All this spending forebodes a humongous tax increase.
So Congress, looking for new sources of tax revenue, could have knocked me over with a fender when I heard they are considering a tax on soda pop to pay for health-care programs. Congress might even consider sin taxes on escort services, condoms, Viagra, Levitra and Cialis.
This multitrillion-dollar deficit guarantees higher taxes, not just for the rich (the top 20 percent in 2007 paid 88 percent of all federal income taxes) but much higher taxes for all of middle-class America. This, of course, presages higher interest rates as well as a return to high single-digit or low double-digit inflation.
I like Campbell Soup Co. (CPB-$28.33), whose soups have fed me through a half-dozen devastating hurricanes in Florida. I would use that $1,300 to purchase 47 shares, increasing your position to 200 shares. CPB trades just 4 points above its 52-week low, and management forecasts annual sales growth of 3 to 4 percent and earnings growth of 5 to 7 percent. The stock trades at a low nine times earnings and the $1 dividend yields 3.5 percent. I think CPB should trade at 11 times earnings, which potentially puts the price at $33.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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