Monday, June 7, 2010

Uh Oh

A prediction from economist Arthur Laffer in the June 7, 2010 Wall Street Journal:

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.


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 this isn't the time to be buying stocks, is it?  Or houses, or anything except maybe canned food, ammo, and guns.  On the plus side, if adults take over Congress in the November elections (Republicans certainly will, but adult Republicans is more uncertain), they will have an unprecedented opportunity to hold Obama's feet to the fire.


  1. It's *always* a good time to buy stocks, assuming two things:

    1. You have researched the companies that you want to invest in, and they are solid companies that have lots of promise.

    2. The money you wish to sink into those companies is money you could do without for five or more years.

    Having said that, food, guns and ammo are still very good investments--indeed, if the stock market crashes so thoroughly that it cannot recover, they would be the *only* investments that matter :-).

  2. I presume you've already seen this: