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Economy scheduled for collapse in 2011

July 3, 2010

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.

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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.

I guess we’ll know in about 9 months (end of first quarter 2011). Of course if Laffer is right everyone will find a reason why some other effect caused the second dip of the double dip recession. If he is wrong it will be taken as proof that taxes don’t matter. I haven’t read Friedman’s “Monetary History” in depth but it seems to me that we are following the path he described as causing the majority of the Great Depression, increasing taxes and decreasing gov’t spending / the money supply at a time when we should be doing neither of those things.

-elsewhere-

Good God No! – Beck University? I think the world just threw up in my mouth a little bit.

The International Baccalaureate program is apparently catching on in more and more schools. I’m not sure this is really that good a thing – I am for improving education and the student learning experience but this seems to be aimed at to narrow a slice of the population. Personally I would rather see measures taken that improve educational outcomes for everybody not just the top 10% of a schools students. (No I don’t know exactly what those would be, but I would bet that “tracking” is one. Using testing to identify where exactly a student is in their knowledge and getting them into a class with others at the same level so everyone can move at their own optimal speed).

Gulf oil spill likely to reach Florida Keys, Miami, report says – are they sure or are we just seeing the after effects of the visit from the Jersey Shore gang?

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