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More Doom and Gloom


Two article for you to ponder.

The first my Arthur Laffer of the Laffer Curve fame.

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.

No brainer really.  Unless your a liberal and economics isn’t your strong subject. (Full article here.) But next comes the bad news.

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.

Even Keynesians will note that severe tax increase, the likes of which Laffer is talking about, isn’t good for economic recovery.

So if that doesn’t dampen your spirits, here is another article from Brett Arends.

We already know that when you strip out the short-term Census jobs, May’s jobs growth was a pitiful 41,000. But what people haven’t realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. “The big news is that we have a job loss of about 200,000 coming in June,” says Trim Tabs’ Madeline Schnapp, “and the market isn’t ready for it.”

Get all that. We will have to wait and see June’s numbers but if Arends is right, we are fucked!

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Categories: Doom
  1. Seth
    June 9, 2010 at 11:51

    I always love the reductio ad absurdum on the Laffer Curve. “If that’s true, then we could maximize tax revenue at a 0% tax rate.” Actually, no. Notice the bend in the curve and the intersection at 0% and $0.

    • June 9, 2010 at 18:45

      For the purposes of this article, he is dead on. Taxes are going up, the gains in GDP have at least a part be because of income shifting away from next year. We see that in Cash for Clunkers and we will see that even more now that the Housing deduction is gone.

      As for the reductio, it usually the opponents of the curve that use those arguments, not Laffer himself, unless you have some links?

  2. Seth
    June 11, 2010 at 20:32

    Yes…I was referring to the opponents. Sorry, I wasn’t clear. I was off topic. I wasn’t suggesting Laffer made that criticism of his own curve.

    I was just reliving all the fond memories of that criticism being the typical first thing I hear from opponents when the Laffer curve is mentioned. And, you know it’s time to quit when you draw it out for them and they say, “see, Laffer is wrong, tax revenue would be $0 at 0% rate.” “No, this IS the Laffer curve.” “Yeah right, even Laffer says it would be $0, he doesn’t believe his own curve.” “No, this is the Laffer curve. This is it. This is what Laffer says.” Blank stare. “The A-Team comes out today.”

    You haven’t had such discussions?

    • June 13, 2010 at 17:28

      lol actually I don’t argue the laffer curve with my fellow liberals, hence the Klein paper.

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