Tax Hikes And The Coming 2011 Economic Collapse

Arthur Laffer is probably best known for the “Laffer Curve” which showed the relationship between tax rates versus government income from taxes. In essence, lower tax rates translate into more government revenues. This theory has been tested time and time again against empirical data and has been shown to be extrememly sound.

But today, he has penned a very prophetic essay for the Wall Street Journal in which he shows exactly how allowing the Bush Tax cuts to expire will hasten the collapse of the U.S. economy beginning in January of 2011.

From his article:

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. … [I]t’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.

People do not like to go to work only to see their money confiscated by the government and given to someone who did not work to earn that money. Along the same line of logic, those who get money without having to work for it will never want to work.

More:

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.

The people who see this coming will do something this year to avoid the massive losses they will face next year when their taxes will dramatically go up.

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.

This is in contrast to the Reagan tax cuts, a fair bulk of which did not take effect until January 1, 1983, after which the economy took off like a bat out of hell. The coming tax cut expirations (which Barack Obama and the Democrats are more than happy to allow) will have the exact opposite effect of the Reagan tax cuts. When this happens, we really will have the worst economic crisis since the Great Depression and only Barack Obama and the Democrats can be blamed. Of course, Obama and the Dems will try to assign blame everywhere else.

And if you have retirement accounts that will be affected:

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.

Get ready. The Obama Depression is just around the corner and the President is travelling for photo-ops and parties instead of taking steps to effectively deal with it.

You can access the complete column on-line here:

Tax Hikes And The 2011 Economic Collapse
Arthur Laffer
Wall Street Journal
June 7, 2010

The Coming Budget Fight And Why We Need To Make Sure It Is A Big Fight

What will the ultimate results of Obama’s budget and tax hikes be? In general terms, bad news. But in terms of how much of the U.S. economy is going to be swallowed up by government, it looks even worse.

Patrick Buchanan, writing for Town Hall, gives us some particulars:

Where the U.S. government usually consumes 21 percent of gross domestic product, this Obama budget spends 28 percent in 2009 and runs a deficit of $1.75 trillion, or 12.7 percent of GDP. That is four times the largest deficit of George W. Bush and twice as large a share of the economy as any deficit run since World War II. Add that 28 percent of GDP spent by the U.S. government to the 12 percent spent by states, counties and cities, and government will consume 40 percent of the economy in 2009.

40%. And most of that is going to be wasted on welfare programs and socialist wealth redsitribution schemes.

More:

Since the budget was released, word has come that the U.S. economy did not shrink by 3.8 percent in the fourth quarter, but 6.2 percent. All the assumptions in Obama’s budget about growth in 2009 and 2010 need to be revised downward, and the deficits revised upward. Look for the deficit for 2009 to cross $2 trillion.

Do you remember just two years ago when the Dems were screaming that Bush’s budget was causing a deficit and how the Dems were going to fix that for us? I guess when the Dems said “fix” it they meant they were going to send it soaring even higher than Bush ever tried to do.

And this:

Who abroad is going to lend us the trillions to finance our deficits without demanding higher interest rates on the U.S. bonds they are being asked to hold? And if we must revert to the printing press to create the money, what happens to the dollar? … Who is going to pay for all this? The top 2 percent, the filthy rich who got all those Bush tax breaks, say Democrats. But the top 5 percent of income earners already pay 60 percent of U.S. income taxes, while the bottom 40 percent pays nothing.

And that bottom forty percent are going to get nice fat checks next April, that is, wealth will be redistributed to them despite the fact that they do not invest, they do not employ other people and their tax burdern was 0. In other words, Obama is making good on his promise so that he can complete the deal of buying off their votes. What is going to happen when the banks no longer honor those government checks, though?

And the reason we know that Obamanomics is going to be a disaster:

Markets are not infallible. But the stock market has long been a “lead indicator” of where the economy will be six months from now. What are the markets, the collective decisions of millions of investors, saying? Having fallen every month since Obama’s election, with January and February the worst two months in history, they are telling us the stimulus package will not work, that Tim Geithner is clueless about how to save the banks, that the Obama budget portends disaster for the republic.

Which is why we need to put up a huge fight over the budget and the way this administration is dragging us towards socialism.

You can access the complete column on-line here:

Pitchfork Time
Patrick J. Buchanan
TownHall.com
March 3, 2009

Obama’s Deficit: His Gift To Future Generations

Can someone tell me why just a few days ago this guy was bitching about inheriting a budget deficit from the previous administration but then turns around and does this:

President Barack Obama is sending Congress a budget Thursday that projects the government’s deficit for this year will soar to $1.75 trillion …

He was complaining about the deficits left to him by the previous administration. Is he so ignorant that he does not realize that he will be passing along deficits that will be five to ten times larger to the next administration in 2012?

And here is what is going to send us into a new Great Depression:

A senior administration official told The Associated Press that Obama’s $3 trillion-plus spending blueprint also asks Congress to raise taxes on the wealthy in 2011 and cut Medicare costs to provide health care for the uninsured. It would raise taxes on wealthy hedge fund managers and corporations … Obama’s budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011.

Somehow, Obama and the socialists in Congress have convinced themselves that taking money away from those who provide investment and employment will magically result in more investment and employment. The exact opposite is going to happen and given Obama’s track record in his recent speeches, he will come up with any lie to try and blame someone else.

You can access the complete article on-line here:

Official: Budget Projects $1.75 Trillion Deficit
NBC News and News Services via MSNBC
February 26, 2009

Myth Vs. Fact: The Obama Infomercial Lies To Taxpayers About Obama Tax Hike

And the hits just keep on coming! Americans For Tax Reform have found a few “easter eggs” in the 30 minute Barack Obama Infomercial too. Let’s see what they have to say:

Myth: “As president, here’s what I’ll do. Cut taxes for every working family making less than $200,000 a year. Give businesses a tax credit for every new employee that they hire right here in the US over the next two years, and eliminate tax breaks for companies that ship jobs overseas.” Fact: According to IRS data, 33% of families don’t even have an income tax liability, so it’s impossible to cut their income taxes. Also, Obama’s summary conveniently leaves out the fact that he would bring the small business tax rate to over 50 percent and would hike the capital gains and dividends tax at a time of market turmoil. His plan is a massive tax hike.

And somewhere in there, Obama and his followers have somehow convinced themselves that taking even more money out of the American economy is going to lead to some sort of prosperity. It won’t. It will lead to an even worse economic downturn, just as Jimmy Carter’s misguided economic policies did from 1977 onward.

Myth: (OH Gov. Ted Strickland speaking): “Think of this. Barack Obama is going to be a Democrat in the presidency who actually cuts taxes. But he’s gonna cut taxes for the people who really need a tax cut. He’s gonna cut taxes for the struggling families. And he’s gonna do that while holding accountable those companies that take advantage of tax breaks in order to send jobs offshore and to other countries.” Fact: Obama will raise taxes by over $1 trillion by hiking the small business tax rates, the Social Security tax rate, and the nest egg tax rates on capital gains and dividends. Also, the reason companies move overseas is because our taxes are already too high. How does raising their taxes do anything but make this problem worse?

Many workers (myself included) already lost money in our 401k accounts because of the recent crisis on Wall Street. Taxing our retirement accounts is only going to make that problem worse and devalue our 401k’s even further. It will certainly encourage me to move my money off-shore where the socialists won’t be able to get to it.

Myth: (VA Gov. Tim Kaine) “Barack has looked at the small business side of the American economy and says ‘Look, that’s where most innovation and entrepreneurship is. Let’s give them the rocket fuel to really accelerate rather than giving tax cuts to the ExxonMobils or the big oil companies that need not one ounce of help from the government to be very successful.’” Fact: Under Obama’s tax hike, the tax rate on two-thirds of small business profits will exceed 50 percent for the first time since Jimmy Carter. If that’s rocket fuel, the U.S. economy won’t ever get off the launch pad. Also, raising taxes on energy companies won’t do anything except make energy more expensive for consumers.

Here is another economic fact that simply isn’t registering with the Democrats. Taxes get passed on to consumer in the form of a higher price for the product or service. Higher taxes mean even higher prices. So, if the socialists raise taxes on companies that produce energy, the price we consumers pay is also going to go up.

Myth: “I’ve offered spending cuts above and beyond their cost” Fact: We can’t say it any better than the AP: “Obama’s assertion that “I’ve offered spending cuts above and beyond” the expense of his promises is accepted only by his partisans. His vow to save money by ‘eliminating programs that don’t work’ masks his failure throughout the campaign to specify what those programs are—beyond the withdrawal of troops from Iraq.”

And that’s true. Apart from cuts in defense spending, I can’t think of anything Obama has promised to cut. Certainly not any bottomless pit social programs.

Myth: “So I’m not worried about CEO’s, I’m not worried about corporate lobbyists, I’m not worried about the drug companies or the oil companies or the insurance companies–they’ll be fine, they’re going to look out for themselves. I’m worried about the couple that’s trying to figure out how they’re going to retire. I’m worried about the family that’s trying to figure out how they can save for their child’s college education. I’m worried about the single mom that doesn’t have health insurance. I’m worried about the guy who has worked in a plant for 20 years and suddenly sees his job shipped overseas. That’s who I’m worried about. That’s who I’m going to be fighting for and thinking about every single day that I’m in the White House.” Fact: If he’s worried about the couple about to retire, Obama should be asking himself why he wants to tank their 401(k) nest egg by raising capital gains and dividends taxes. If he’s worried about the parents saving for college or struggling to afford health insurance, he should ask himself if raising their small business employer’s tax rate to over 50 percent is a good idea. If he’s worried about the longtime employee’s job getting shipped overseas, he should ask if the fact that America has the second-highest corporate income tax rate in the world has anything to do with that.

Anyone who has a retirement savings account should be concerned at this point. Money that you worked for, that you put away so that in your autumn years you could live comfortably, is going to be confiscated for Barack Obama’s efforts at “redistributing the wealth” a la European socialist style.

You can access the complete article on-line here:

Myth vs. Fact: The Obama Infomercial Lies to Taxpayers About Obama Tax Hike
Americans For Tax Reform
October 30, 2008