Tuesday, June 8, 2010

By the numbers



35% to 39.6% - the rise in the top income tax rate beginning Jan. 1, 2011.

15% to 39.6% - the rise in the highest federal dividend tax rate beginning Jan. 1.

15% to 20% - the rise in the capital gains tax rate beginning Jan. 1.

0% to 55% - the rise in the estate (or death) tax rate beginning Jan. 1.




Arthur Laffer, writing for the Wall St. Journal argues that some of the encouraging signs we are seeing in the economy are illusory as people and businesses are simply making rational decisions to shift income and production into this year and away from next year when the aforementioned tax rates shoot up.

Laffer makes the case that the Reagan tax cuts are the mirror opposite of the Obama economic plan. In '81, Reagan got his first series of tax cuts passed but because they didn't take effect until Jan. 1, 1983, the economy fell into recession as people deferred economic activity until the clock struck midnight on 1982. In 1983, the economy exploded in growth after 5 quarters of negative or minimal GDP growth.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.

Awesome.

We've been biting our tongue now for a while because we do not want to seem pessimistic and/or betting against Ameica but with the expiration of the Bush tax cuts combined with the excessive regulatory regime that has been enacted already and that which is pending, we just don't see any way around double-dipping.

It's a damn shame and it just doesn't need to be this way.

5 comments:

Harrison said...

I read the Laffer article, too. Tax cuts do grow the economy... unless everybody is working for Uncle Obama.

K T Cat said...

As I understand it, Laffer has been somewhat discredited. (Was that sufficiently weasel-worded?)

I would argue instead that a flatter, simpler tax structure would be better and a less invasive government as well. For example, why do we need CAFE standards?

As for being pessimistic about the US, don't be. Obama is proving all of our fears about lefties correct. November will be devastating to him and two years later even worse.

Dean said...

For the record, I am in favor of a flat-tax.

Between Bush getting the ball rolling and Obama kicking things into overdrive, I fear there is just too much downward momentum to stop this thing despite electoral outcomes in November.

W.C. Varones said...

Double-dip?

That presumes there was a bump in the middle.

If 3-4% GDP growth is all you get from 10% GDP deficit spending, that ain't much of a bump. And notice there were no private sector jobs created with that alleged GDP growth.

Bernanke and Obama have just shot the junkie full of more heroin, and got him to squirm a little, but they haven't fixed a damned thing.

W.C. Varones said...

Double-dip?

That presumes there was a bump in the middle.

If 3-4% GDP growth is all you get from 10% GDP deficit spending, that ain't much of a bump. And notice there were no private sector jobs created with that alleged GDP growth.

Bernanke and Obama have just shot the junkie full of more heroin, and got him to squirm a little, but they haven't fixed a damned thing.