Tax Hikes and the 2011 Economic Collapse
WaveCameCrashin
Posts: 2,929
Obama,from the other day " All the economist say we are heading in the right direction"
Sure Mr. President whatever you say :roll:
http://online.wsj.com/article/SB1000142 ... 86610.html
By ARTHUR LAFFER
People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.
It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.
Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it's also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.
Gay Couples Get Equal Tax Treatment
IRS Nears Action on Church Pensions
Complete Coverage: WSJ.com/Taxes
People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."
Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.
On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.
Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.
Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.
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.
In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.
But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.
Associated Press
In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.
The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet.
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
Sure Mr. President whatever you say :roll:
http://online.wsj.com/article/SB1000142 ... 86610.html
By ARTHUR LAFFER
People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.
It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.
Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it's also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.
Gay Couples Get Equal Tax Treatment
IRS Nears Action on Church Pensions
Complete Coverage: WSJ.com/Taxes
People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."
Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.
On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.
Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.
Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.
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.
In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.
But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.
Associated Press
In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.
The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet.
Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).
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Comments
It's the rich protecting their own interests.
in theory tax cuts are supposed to be an incentive for a company to invest in American business here in America.
What they actually do is take the tax cuts and use the extra cash to float business interests outside the US which makes no jobs or investments of wealth here.
tax cuts don't work. How long are we going to beat this dead horse?
I know those terrible evil rich people. :roll: and Im broke...
Whatever :roll: is doesn't take a degree in econmoics to figure out that Tax breaks do in fact work.
Maybe this will help you..
http://www.businessandmedia.org/comment ... 060111.asp
Econ 101: How Do Tax Cuts Work?
Despite the media’s portrayal, tax cuts ‘for the rich’ aren’t bad – and they boost the economy.
By Gary Wolfram, Ph.D.
Business & Media Institute Adviser
Jan. 11, 2006
The recent economic expansion in the United States – bolstered by news of 2 million jobs created in 2005 and an unemployment rate below 5 percent – is in large part due to the 2003 tax reduction. Tax cuts create economic growth. There is little doubt that this is the case, both at the national and local levels. Let’s look at how they’ve worked through history.
A Short History: Tax Cuts Work
If we look at the U.S. economy, three historical examples are the Harding-Coolidge tax cuts of the 1920s, the Kennedy-Johnson tax cuts of the 1960s, and the Reagan cuts of the 1980s. The U.S. federal income tax, established with the enactment of the 16th amendment in 1913, began with a top marginal rate of 7 percent. This quickly escalated to 77 percent by 1918. During the Harding-Coolidge administrations the top marginal rate was reduced to 25 percent by 1925. Economic output nearly doubled over the following four years, and unemployment fell sharply.
During the Depression and World War II tax rates rose steadily, with the top marginal rate reaching 94 percent by the end of the War and remaining at 90 percent or more well into Kennedy's term. Kennedy pushed for tax cuts, which were enacted in 1964 after his assassination. The top marginal tax rate was reduced from 91 percent to 70 percent by 1965. What followed was a major expansion in the economy. Real gross domestic product rose in the four years after the tax cut by an average of 5.1 percent per year. Unemployment averaged 3.9 percent, compared to a 5.8 percent average in the four years prior to the tax cut.
The Reagan tax cuts of 1981 dropped the top marginal rate from 70 percent to 50 percent, with additional cuts in the tax on capital gains. The top marginal rate was further reduced to 28 percent by 1988. The result was again an increase in growth in the economy. Real GDP grew by .9 percent per year between 1978 and 1982, and grew by 4.8 percent per year from 1983 to 1986. The unemployment rate was 9.7 percent in 1982. It fell to 7.0 percent by 1986, and was 5.3 percent in January of 1989.
Tax Cuts ‘for the Rich’?
This is a history of tax breaks “for the rich” resulting in economic growth for everyone, especially for the poor. Just as an example, in 1920, 26 percent of Americans owned automobiles. The Harding-Coolidge tax cuts were enacted and by 1930, 60 percent of Americans had a car. Electric lighting was in 35 percent of Americans’ homes in 1920 and 68 percent by 1930. When the top marginal tax rate was 91 percent in 1920, only one in five people lived in a household with a flush toilet. By 1930 more than half of Americans would have flush toilets.
Why does a reduction in the highest marginal tax rates improve the living standards of all of us? It does not occur due to some trickle-down theory that rich people will spend more money on goods and this will create jobs for the rest of us. There simply aren’t enough rich people for this to make sense. The real answer lies in an understanding of how markets work.
A market economy is based on voluntary exchange. I cannot force you to buy something that I produce, and you cannot force me to produce something for you. The only way you can get rich in a market economy is to produce something that others want and are willing to pay for. Since there are not a lot of rich people, you are more likely to get rich producing something for the poor and middle class that they will want and at a cost that they can and are willing to pay.
The marginal tax rate is the one that affects your incentive to do this. It tells you how much of the next dollar the government will take and how much of the next dollar you get to keep. Lowering the marginal tax rates creates a greater incentive for people to find a way to produce things for the poor. This is what happens in any market economy, be it the United States or Estonia (which is growing rapidly after reducing its top marginal tax rates). It also makes it easier for people who are poor to become rich, thus increasing their willingness to work hard and risk their assets to produce what others will want.
If the government taxes away 90 percent of each additional dollar you earn, there will be little incentive for you to risk your life's earnings in a new venture that has an uncertain payoff, and it will be very difficult for you to move from poverty to wealth. On the other hand, if you get to keep 75 percent of each dollar that you earn, you will have an incentive to risk your capital, work hard, and produce goods and services that others want at a cost they can afford.
Democrats try to chide Republicans for offering “tax breaks for the rich.” Republicans, unfortunately, seem not to be willing to claim credit for doing so. It is by creating tax breaks for the rich that the poor in America become wealthy. Today 60 percent of all poor households in America own their own car. Nearly half own their own home. This situation has occurred because of the workings of the market system of voluntary exchange and incentives that reward those who produce for others. Once the average person understands how the market system works, attempts to confuse voters through what Ludwig von Mises called the politics of envy will fail, and we will be able to maintain economic growth for all.
history does not support this argument. The Economy collapsed and at the end of the Bush 2 era we were losing a million jobs a month. Your article also makes no mention of the enormous amounts of debt "the lucky poor" took on to stay afloat.
bullshit. You keep chasing that carrot they have you chasing, I prefer Thom Hartman's take.
http://www.huffingtonpost.com/thom-hart ... 42065.html