Posted on 06/07/2010 2:12:53 PM PDT by Comrade Brother Abu Bubba
Arthur Laffer explains how proposed January 2011 tax hikes could be creating terrible unintended consequences today, and are setting the stage for an epic collapse next year.
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.
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.
(Excerpt) Read more at online.wsj.com ...
Almost every person I know in NJ/NY who has investment income is in the process of moving out of NJ/NY. Colorado and Florida being the primary destinations due to low personal and corporate income taxes.
:’)
“Some are saying that they Bush Tax Cuts cannot be continued because of the size of the deficits.”
Of course they are ignorant of the fact that although the tax rates were cut - revenues INCREASED!
For the past ten years I maxed out my contributions and employer-matched contribution to my 401k.
Should I roll over my 401k into a roth IRA now?
Please e-mail me with your advice. I’m getting scared. I’m unemployed too.
If you don’t need the money right now, leave it where it is — assuming you’ve been employed most of this year.
Do the conversion to the Roth after Jan 1 2011 if you’re still not employed but have decent prospects.
If your prospects are not good, liquidate your 401K and use it to either relocate, or go back to school, or both.
Take this advice with a great big grain of salt, too.
"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. "
I’ll stick with Laffer here.
That’s a very sketchy thesis, because it assumes a rapid economic response to either tax hikes or cuts, and it also attributes a president, not congress, with economic direction.
Instead, think of four presidential terms: H.W. Bush, Clinton 1, Clinton 2, and W. Bush 1. Now compare them to the seven associated congresses of the time.
H.W. Bush - 102nd US Congress. Democrat control of both houses.
Clinton 1 - 103rd US Congress. Democrat control.
Clinton 1 - 104th US Congress. Republican control.
Clinton 2 - 105th US Congress. Republican control.
Clinton 2 - 106th US Congress. Republican control.
W. Bush 1 - 107th US Congress. 1 Vote Dem Senate. Rep House.
W. Bush 2 - 108th US Congress. Republican control.
Compare this to the CBO Surplus/Deficit chart in the story, and the truth becomes very obvious. It is not the president that matters, but congress. When the Republicans took control in the 104th congress, they imposed considerably more fiscal control. But they went bad when W. Bush was elected, going on a spending binge, that more than neutralized the W. Bush tax cuts.
Remember well how Clinton bitterly fought welfare reform, then when it was passed, and worked, how he took credit for its success? The same with the economy. When the Republicans were reform minded, it did wonders for the federal budget, which again Clinton took credit for.
But when the Republicans went on a spending rampage, the budget again turned south.
http://www.marchandmeffre.com/detroit/
Add to that imagery hordes of hungry, thirsty refugees looking for something of yours with which to fill their bellies; by any means necessary.
And be reminded that the hungry, thirsty hordes will be really wasteful and destructive, trashing everything they do not need at that instant, and moving on to the next place. So in a very short time, nobody will have anything.
I am less certain of an acute crisis as opposed to a protracted, annoying one. There are some good reasons for this.
Even during the Great Depression, after years of the Dust Bowl had wiped out thousands of farms from Texas into Canada, there was still such an excess of food in America that food prices were very depressed. Wheat was 50 cents a bushel and corn was being burned for fuel.
At the same time, many people were starving. One of Roosevelt’s first effective, if very authoritarian acts, was the creation of the Federal Surplus Relief Corporation (FSRC). It was tasked both with destroying vast amounts of food, and redistributing food to the starving.
One of its first acts was to seize and slaughter over six million pigs from private owners, in the very decentralized pig market. Once killed they were just buried. Then the FSRC continued throughout the agricultural system in a campaign of destruction, to force food prices to rise.
Today, American agribusiness is still heavily controlled, mostly to prevent excess production, yet each year the government spends billions of dollars just to warehouse the excess food until it rots.
So food scarcity is not a problem, even in a severe economic crisis.
And because of malfeasance, there is nationally an overabundance of housing as well. Much of which could be easily taken over by the government as debt relief to banks, then redistributed to the homeless, hopefully under some condition in which they could earn equity, and thus would have incentive to maintain what could become their property.
This handles the two critical things. From that point, a wise government would need to renege on the nonsensical promises to the future of Social Security, Medicare, Medicaid, Obamacare, and other such largesse. Then to either start paying off its existing debt, or just renege it as well.
The federal government would be unable, or unwilling to do this, but it could be done to them, and for them, by the States, seeking to end the economic crisis with a constitutional convention.
Thus, the pain inflicted on the public would be minimized, the recovery would be faster, and America would not fall into deprivation and despair as it did before.
Well, the American people elect the sleazy cons who will bring home the goodies, and it isn’t just Democrats. Our local paper just had an article about Sen. Jim Inhofe, supposedly a true conservative, bragging about some federal money he brought home to Oklahoma. As long as people want to keep their own place at the trough, the spending will not stop.
My idea is to devise a formula that would rate senators based on how much spending they vote for. If your state’s senators vote for more spending than average, then your state’s taxpayers would pay more in federal income taxes. If you have frugal senators, you would pay less. Yeah, I know... it’s not possible. But I can dream.
“If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves.”
- Thomas Sowell
The deficit isn’t the BIG problem - high taxes will ruin the economy. Obama (”stimulus” - stupid name for increasing gov’t spending) and Bush (”no child left behind” and homeland security and other idiotic increases in government) created this deficit which can fairly easily fixed by cutting the idiocy in government.
In economics, Hauser’s Law is an empirical observation that, in the United States, federal tax revenues since World War II have always been equal to approximately 19.5% of GDP, regardless of wide fluctuations in the top marginal tax rate.
That number could and should be cut roughly in half.
Anyway, the problem at this point is that spending at the government level is at a level much higher than 19.5% of GDP.
The American people need to:
1 – Know they’re about to get ripped off and demoted big time (tax increases are no different than a demotion) with the added extra bonus of the economy will also be tanked, and
2 - Call their Congressmen DEMANDING to have these cuts made permanent OR THEY’LL BE VOTED OUT. Give 'em hell if they don't make the cuts permanent.
What can we do?
1 – Everyone call (and keep calling until you get through) whoever you listen to in the supposed conservative talk-show brigade and tell them to tell their audience what’s going to happen and urge their audience to call their congressmen.
2 – Anyone and everyone who knows or is a Tea Party representative call for them to also tell their audience what’s going to happen and urge their audience to call their congressmen.
3 – Call your Congressmen yourself and do the same: DEMAND to have these cuts made permanent OR THEY’LL BE VOTED OUT.
WWRDIHWH? (What would Reagan do if he were here?) He’d GO TO THE AMERICAN PEOPLE like he always did and URGE THEM TO CALL THEIR CONGRESSMEN to vote for the tax cuts he proposed. THIS IS HOW HE WON THE TAX CUTS. Let’s get everyone with a megaphone who’s on our side to do the same.
Great post. Great advice.
From one of the comments at your link:
“
0 1 Flag as Offensive BobisAnIdiot on Jun 8, 4:52 PM said: @zzzzzzzzzz:
The revenues after the Bush tax cuts increased sharply. Comparing year-over-year, we had revenue growth of 8.2% (’04), 14.6% (’05), 11.7% (’06), 6.7% (’07) before dipping by 1.7% in ‘08. .
Revenues exceeded $2T every year after the Bush tax cuts except for ‘04 ($1.88T) and in ‘06 & ‘07 exceeded $2.5T.
But it wasn’t enough, as Congress continued deficit spending. Year-over-year spending increases were 6.2%, 7.8%, 7.4% and 2.8% from ‘04-’07. Then the Democrats took over Congress and things really caught fire, as they spent 9.3% more in ‘08 and a whopping 34% more in ‘09.
With the increased revenue (even larger than increased spending over ‘03-’07), the amount added to the debt each year was steadily decreasing, especially when viewed as a percentage of GDP: 5.5% in ‘03, then 5.3%, 4.3%, 4.1%, and finally 3.4% in ‘07 (which is less than the 3.9% in ‘02).
That’s over now, with more than $1T added by Democratic Congress ‘08 and ‘09 and more than $1.5T in the new budget.”
The relevance of any government deficit must be measured against a nation’s gross domestic product (GDP) and its trend. Economics 101. Last year the irresponsible Greeks ran a budget deficit equal to 12.7% of GDP and consequently ‘hit the wall’. So now, let’s look at the average budget deficits of Reagan, Bush1, Clinton, Bush2, and finally the magic OBAMA with his Democrat cohorts.
Reagan (1981-88) - 4.16%
Bush1 (1989-92) - 3.92%
Clinton (1993-2000) - .75% (credit going to the Republican-dominated Congress)
Bush2 (2001-2008) - 2.01%
OBAMA (2009) - 9.92%
OBAMA (2010) - 10.64%
OBAMA (2011) - 13-15%???
Data source: http://www.usgovernmentspending.com
The truth shall set you free.
Perhaps better sooner than later.
If it is before the election they won't be able to blame the whole mess on republicans.
10 seconds after the election results are certified, and it's all the conservatives fault.
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