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Arthur Laffer predicts double dip recession in 2011

cpwill

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Tax Hikes and the 2011 Economic Collapse

...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...

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.

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.

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... 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...

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market... 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.
 

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This artificially low interest rate may actually cause a double-dip, beyond all the housing tax credit expiring and tax increases. You can't continue to pump money into the economy before the distortion is realized and prices spike again.
 

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Given the nature and the depth of the problems the US and many other countries faced economically, and the extreme level of governmental intervention that has gone on to combat the economic slowdown, the possibility (probability) of a double dip should not suprise anyone. I would suggest the double dip will be worse for more individuals then the first dip has been. Especially as their will not be as much government money avaliable to combat the slowdown as was in the first
 

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Given the nature and the depth of the problems the US and many other countries faced economically, and the extreme level of governmental intervention that has gone on to combat the economic slowdown, the possibility (probability) of a double dip should not suprise anyone. I would suggest the double dip will be worse for more individuals then the first dip has been. Especially as their will not be as much government money avaliable to combat the slowdown as was in the first
It's government money that caused the problem. How else do you explain the rise in consumer prices and fall in demand that occurs at the onset of a recession? Animal spirits that come to life out of nowhere?
 

Lord Tammerlain

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It's government money that caused the problem. How else do you explain the rise in consumer prices and fall in demand that occurs at the onset of a recession? Animal spirits that come to life out of nowhere?
What do you mean by the government caused the problem.

I was expecting an economic recession of a large magnitude to occur within a short period of time in around 2005, due to excessive debt levels and over heated assets prices. Did the governemnt play a role in the bubble getting as big as it was, sure, but bubbles do occur without governmental involvement and so do recessions/depressions.


Governemnt spending did bring the economy up over the last year or so, leading the high probability of a double dip
 

Demon of Light

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I have a lot of theories about what will cause the collapse of this false boom and none of them involve tax hikes. A number of issues in the U.S. seem to be coming into view like the expiration of unemployment benefits, COBRA health programs, and end to state medicaid support from the federal government. This is happening as states are at the point where they have little option but to cut heavily into government programs and there is a lot of talk about major municipal bankrupcties. All of this is certain to hit before 2011. Then you have the current hell going on in Europe. I have done some looking and it seems if the Greek banking system, now heavily exposed, were to suffer a major shock it could cut a path of contagion right to Germany, the financial heart of Europe. If that happens then all this talk will be really meaningless.
 

Lord Tammerlain

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The economy is up? By what measure? Certainly not unemployment. That still is the same. GDP? That's probably still negative when you look at numbers that don't come from the government.

Alternate Gross Domestic Product Chart
That the government manipulates GDP growth rates, I would be suprised it is to the extent listed in Shadowstats. Their chart seems to indicate the US economy did not grow at all in the Bush admin. Without the excess government debt creating unsustainable growth, i could see it, but that the US economy was smaller in constant dollars in 2009 then it was in 2001 would be more difficult to believe
 

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Well you have to remember that this is real GDP growth that is charted, and that CPI is not a perfect measure of inflation because the total supply of goods changes with time. So yes, of course we grew, but probably not all that much. Looking at SGS charts on inflation will tell you why real GDP numbers are what they are.
 
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Lord Tammerlain

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Well you have to remember that this is real GDP growth that is charted, and that CPI is not a perfect measure of inflation because the total supply of goods changes with time. So yes, of course we grew, but probably not all that much. Looking at SGS charts on inflation will tell you why real GDP numbers are what they are.
I dont doubt it, I do believe that both infaltion and GDP growth rates are manipulated to appear far better then they are.

I just expected true GDP growth in the US to be around 1-2% a year on average in the Bush years, not overall negative. I had thought the massive governent spending combined with massive consumer debt expansion would have caused some economic growth, unsustainable, but some actual growth
 

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What do you mean by the government caused the problem.

I was expecting an economic recession of a large magnitude to occur within a short period of time in around 2005, due to excessive debt levels and over heated assets prices. Did the governemnt play a role in the bubble getting as big as it was, sure, but bubbles do occur without governmental involvement and so do recessions/depressions.


Governemnt spending did bring the economy up over the last year or so, leading the high probability of a double dip
Do you count Federal Reserve actions part of government involvment? If so then letting the money supply grow and keeping interest rates too low to long was a big cause of the asset ( real estate) bubble.
 

I'm Supposn

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What can we agree upon?

C P Will, I recently heard Laffer deliver this speech within an NPR broadcast. Few people would disagree with many of this speech’s contentions.

Our mutual experiences, knowledge and logic leads most of us to agree that the revenue obtained from too low of a tax rate doesn’t justify the specific tax’s overhead and other collection expenditures. (I mention this because “supply side” proponents may agree but they never refer to this facet of tax administration).

We also agree too large of a tax rate increasingly induces individuals’ and enterprises’ affairs to both legally avoid and/or illegally evade taxes.

I’m among those that contend at some tax rate the graphic characteristic of a tax’s revenue and tax rate relationship changes. At that point (that differs for specific basis of taxation), the revenue per rate of tax begin decelerating at a continuously more significant extent as tax rates are further increased.

Too many proponents of “supply side” economics conclude from this that tax reductions are in them- selves always to the nation’s net economic benefit. It’s easy to rationalize reduction of taxes upon ourselves or our enterprises are to our nation’s best interests. We then further rationalize supply side economics supporting reduction of our taxes equate to the concept’s complete validity. As George Gershwin wrote, “It ain’t necessarily so”.

Respectfully, Supposn
 

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What supply siders ignore

Proponents of “supply side” economics point to specific increased commercial activities following a tax reduction as proof of the tax cut’s benefit to our economy. They ignore what they agree is tax payers’ ability to conduct their affairs to their best individual advantages. Changes in our tax regulations or rates modify our commercial activities. Modifications of activities begin as soon as passage of a tax cut is anticipated.

For example where feasible, the accounting of actual realization of profits were delayed until the reduced tax rate was enacted). Similarly there were other increased declarations of activity and profits that were “one shot” increases of commercial activities that were not sustained in later years. After a tax cut, increased monetary amounts of commercial activity that proponents attribute to a tax cut and are actually due to the inflation of the U.S. dollar.

To some extent the decreased tax rate’s affect upon federal revenue was a contributing factor to increased federal debt more than otherwise. This in turn affects the value of the U.S. dollar. None of this is to our nation’s best economic interests.

Respectfully, Supposn
 

I'm Supposn

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Re: What supply siders ignore

There are many factors that may be germane concerning a specific tax’s affect upon an economy. Concerning any tax’s rate, I submit two factors for your consideration:
(1) To what extent would the tax rate generate insufficient revenue to justify the taxes administration expenses, (including enforcement)?
(2) To what extent would the additional revenue due to enacting a tax or increasing a tax’s rate fail to justify additional administration expenses or would undermine respect for our government and its laws?

With full consideration of these factors and the financial advantages of diverse revenue sources, I’m a proponent of multi revenue sources with lesser tax rates for each source.

Respectfully, Supposn
 

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It's government money that caused the problem. How else do you explain the rise in consumer prices and fall in demand that occurs at the onset of a recession? Animal spirits that come to life out of nowhere?
During the early stages of the ression, I think that the inflation came from the increase in gasoline price. The fall in demand was also from rising gasoline price. As people had to use more of their income to purchase gasoline, they consumed less of other products. This lead to unemployment which lead to further decreased demand which lead to more unemployment.

I really dont thing that government money caused the first part of the recession.

The banking crises was the second blow which changed the nature of the recession from a normal mild recession to an all out crises.

Government money really did not come into play until after the banking crises was reaching a supposed tiping point, so I really dont blame government money for that either.
 

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Do you count Federal Reserve actions part of government involvment? If so then letting the money supply grow and keeping interest rates too low to long was a big cause of the asset ( real estate) bubble.

Was it that or was it laws that allowed lenders to qualify people for loans based on artificially introductory low rates which increased significantly after two or three or five years depending on the contract, creating a situation in which people could no longer afford their payments? I really dont know that the fed reserve had as much to do with that as piss poor regulating on the part of the mortgage industry. And truthfully, I am talking about self regulating, not gov regulating

These large banks were buying up every morgage they could so that they could repackage them and sell them as supposedly safe "CDOs" to people who assumed they were safe as they were stamped with good ratings by the ratings companies. Of course the ratings companies were engaging in fraud when they were giving good ratings to CDO's that they new were not safe. The ratings companies really didnt care as long as they were making (stealling) lots of money by doing so. Morgage origionators were then pushing morgages on to consumers in which the origionators new the people would not be likely to pay once the payments went up. Independant morgage origionators could make from $5,000 to $25,000, virtually instantly and with only a few hours of work, by origionating a single morgage. Real estate agents were pushing their clients to the morgage origionators who would then give them a finders fee for locating a victom.

There is nothing wrong with profits. There is noting wrong with wanting to make all the money that you can (greed). But I have a big problem when profits are made without morals.

I really dont know that the Fed Reserve had a big part to play in all of that.
 

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As I'm Supposn points out, there is always another viewpoint. Laffer seems more concerned for the rich than the rest of the 98% in this country.

Arthur Laffer gets the facts wrong on Bush tax cuts

In a recent op-ed published in the Wall Street Journal, Arthur Laffer predicted that the expiration of the Bush tax cuts on January 1, 2011 will lead to a tax increase that could cripple the nation's economy. According to Laffer's crystal ball, substantial tax hikes will trigger a plunge in the stock market and increase both unemployment and the deficit. It is scary talk, but one doesn’t have to read too far to figure out what Laffer is really worried about: the fact that the rich will soon have to pay their fair share after years of a tax vacation sponsored by the Republican Party.


Laffer dedicates little energy to discussing how the expiration of the Bush tax cuts will affect the average American. Instead, he focuses on figures showing how the highest tax rates will increase after January 1st, i.e. those paid only by the wealthiest of Americans.

The nine states that don’t have any income tax are among the fastest growing in the nation, according to Laffer. First of all, lets get the facts straight. Only seven states have no income tax. Another two, New Hampshire and Tennessee, only tax income from dividends and interest. Now, let’s take a look at current unemployment rates in a few of the states without an income tax to see if Laffer’s claims hold any water

Nevada – 13.7% unemployment
Florida - 12% unemployment

Unemployment rates in income tax free Florida and Nevada have grown to be among the highest in the nation. In fact, unemployment in these two states is even higher than the national unemployment rate of 9.9 percent.

Of course there is always good old South Dakota, no income tax and a healthy unemployment rate of 4.7 percent. You know, South Dakota? Strangely, people are not flocking to South Dakota to take advantage of the state’s lax tax structure and low unemployment rates. The U.S. Census Bureau estimates that only around 800,000 people are proud to call South Dakota home. That’s even less people than my home state of New Hampshire, population 1.3 million. Seems like the only thing growing in these no income tax states is unemployment!

But unemployment numbers don’t matter to Laffer. His constituency is the super rich minority, the only Americans that benefited from the Bush tax cuts. These folks don’t need to worry trifling matters like unemployment.

Mr. Laffer also seems to have overlooked one key fact in making his case about the threat of impending tax increases. “The truth is that the major tax cuts enacted in the 2009 economic stimulus bill actually reduced federal income taxes for tax year 2009 for 98% of working families and individuals,” according to Citizens for Fair Taxes. If taxes have actually gone down for 98% of Americans, what is Laffer worried about? He's worried about the other 2 percent who control most of this nation's wealth.
Arthur Laffer gets the facts wrong on Bush tax cuts | Gather
 

washunut

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Was it that or was it laws that allowed lenders to qualify people for loans based on artificially introductory low rates which increased significantly after two or three or five years depending on the contract, creating a situation in which people could no longer afford their payments? I really dont know that the fed reserve had as much to do with that as piss poor regulating on the part of the mortgage industry. And truthfully, I am talking about self regulating, not gov regulating

These large banks were buying up every morgage they could so that they could repackage them and sell them as supposedly safe "CDOs" to people who assumed they were safe as they were stamped with good ratings by the ratings companies. Of course the ratings companies were engaging in fraud when they were giving good ratings to CDO's that they new were not safe. The ratings companies really didnt care as long as they were making (stealling) lots of money by doing so. Morgage origionators were then pushing morgages on to consumers in which the origionators new the people would not be likely to pay once the payments went up. Independant morgage origionators could make from $5,000 to $25,000, virtually instantly and with only a few hours of work, by origionating a single morgage. Real estate agents were pushing their clients to the morgage origionators who would then give them a finders fee for locating a victom.

There is nothing wrong with profits. There is noting wrong with wanting to make all the money that you can (greed). But I have a big problem when profits are made without morals.

I really dont know that the Fed Reserve had a big part to play in all of that.
The Fed had the ability to regulate the types of loans that are allowed so they had much more power than you are saying. In addition, by keeping interest rates low for so long allowed the type of teaser loans you condemn.

You leave out of your problem folks, the people who bought to gamble that prices would go up so they could flip them. Now we have people who have morttgages under water with the ability to pay who are just walking away because they because they lost a bet - moral? Easy to blame banks. also easy to say someone else is immoral or greedy.

I find it sad, now that America is having some problems, looking to find someone to blame. I am really troubled when the government lies and turns one group of folks against another.
 

cpwill

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As I'm Supposn points out, there is always another viewpoint. Laffer seems more concerned for the rich than the rest of the 98% in this country
Arthur Laffer gets the facts wrong on Bush tax cuts

In a recent op-ed published in the Wall Street Journal, Arthur Laffer predicted that the expiration of the Bush tax cuts on January 1, 2011 will lead to a tax increase that could cripple the nation's economy. According to Laffer's crystal ball, substantial tax hikes will trigger a plunge in the stock market and increase both unemployment and the deficit. It is scary talk, but one doesn’t have to read too far to figure out what Laffer is really worried about: the fact that the employers and those who create jobs will soon have their effective taxes hiked after Bush lowered them

Laffer dedicates little energy to discussing how the expiration of the Bush tax cuts will affect the average American outside of the fact that it will lower his income and employment opportunities. Instead, he focuses on figures showing how the highest tax rates will increase after January 1st, i.e. those paid only by those who employ other Americans.

The nine states that don’t have any income tax are among the fastest growing in the nation, according to Laffer. First of all, lets get the facts straight. Only seven states have no income tax. Another two, New Hampshire and Tennessee, don't collect income tax, but do tax capital gains. Now, let’s take a look at current unemployment rates in a few of the states without an income tax to see if we can create a strawman argument as opposed to actually addressing his point.

Nevada – 13.7% unemployment
Florida - 12% unemployment

Unemployment rates in income tax free Florida and Nevada have grown to be among the highest in the nation. In fact, unemployment in these two states is even higher than the national unemployment rate of 9.9 percent.

Of course there is always good old South Dakota, no income tax and a healthy unemployment rate of 4.7 percent. You know, South Dakota? Strangely, people are not flocking to South Dakota to take advantage of the state’s lax tax structure and low unemployment rates. The U.S. Census Bureau estimates that only around 800,000 people are proud to call South Dakota home. That’s even less people than my home state of New Hampshire, population 1.3 million. Seems like the only thing growing in these no income tax states is unemployment! And then of course there is Texas, but strangely nobody wants to talk about Texas.

But unemployment numbers don’t matter to Laffer. His constituency is the small business owners, one segment of the many Americans that benefited from the Bush tax cuts. These folks don’t need to worry trifling matters like unemployment, instead it is their employees who need to worry about the effect of increased taxation and regulation upon those trying to provide them with jobs.

Mr. Laffer also seems to have overlooked one completely irrelevant fact in making his case about the threat of impending tax increases. “The truth is that the major tax cuts enacted in the 2009 economic stimulus bill actually reduced federal income taxes for tax year 2009 by a wopping 400 bucks, in a one-time rebate, which history has repeatedly shown to be useless for 98% of working families and individuals,” according to Citizens for Fair Taxes. If taxes have actually gone down for 98% of Americans, what is Laffer worried about? He's worried about the other 2 percent who create most of this nation's wealth.
;) fixed it for you.
 
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oldreliable67

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I'm Supposn wrote:

I recently heard Laffer deliver this speech within an NPR broadcast. Few people would disagree with many of this speech’s contentions.
Actually, quite a few folks have taken Laffer to the woodshed for this particular commentary. One of the better responses was from Barry Ritholtz. Ritholtz rebuts Laffer's points, one-by-one.
 
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I agree. It really sucks that people who took "introductory rate" type loans to invest in real estate have walked away from loans. It really does. I'm pretty much a moron when it comes to investing, but during the bubble years I watched all those home flipping shows, OK, dont laugh at me, I just think they are interesting. The one thing that I found my self commenting about with those shows was "how the heck can THAT house be worth $800,000"? Some of those hot market $800,000 homes would be worth about $80,000 in my neck of the woods. In our area, we didn't participate in the bubble, fortunately that means that we didn't have a big price decline either.

I am also aware that some banks felt pressured by government regulation to make high risk loans, that should have never happened. To that extent, this problem was created by the gov.
 

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I agree. It really sucks that people who took "introductory rate" type loans to invest in real estate have walked away from loans. It really does. I'm pretty much a moron when it comes to investing, but during the bubble years I watched all those home flipping shows, OK, dont laugh at me, I just think they are interesting. The one thing that I found my self commenting about with those shows was "how the heck can THAT house be worth $800,000"? Some of those hot market $800,000 homes would be worth about $80,000 in my neck of the woods. In our area, we didn't participate in the bubble, fortunately that means that we didn't have a big price decline either.

I am also aware that some banks felt pressured by government regulation to make high risk loans, that should have never happened. To that extent, this problem was created by the gov.
emphasis added by bubba

sorry, but banks were NOT pressured to make high risk loans
 

I'm Supposn

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I'm Supposn wrote:Actually, quite a few folks have taken Laffer to the woodshed for this particular commentary. One of the better responses was from Barry Ritholtz. Ritholtz rebuts Laffer's points, one-by-one.
Old Reliable 67, reconsidering my words, I regret writing “this speech’s” rather than “his” contentions.

I agree with supply siders’ contention that an excessive tax rate increasingly induces individuals’ and enterprises’ affairs to both legally avoid and/or illegally evade taxes. It is this simple argument and some contentions that support this argument that I find valid. This is the entire foundation upon which supply siders base an ideology they rationalize to be a tax policy panacea.

Supply siders are reluctant to agree with other contentions regarding detrimental economic effects due to insufficient national tax revenues. They always point to Laffer’s curve with regard to high rates of taxation. There are similar curves describing revenues at the lower end of all those same graphed lines which describe revenue derived from insufficient tax rates. I discussed some these other concepts within this thread’s prior messages.

My messages and conclusions should not be perceived (as your message implied) to be supportive of supply side economics. With full consideration of germane factors and the financial advantages of diverse revenue sources, I’m a proponent of multi revenue sources with lesser tax rates for each source.

Respectfully, Supposn
 

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As I'm Supposn points out, there is always another viewpoint. Laffer seems more concerned for the rich than the rest of the 98% in this country.

Arthur Laffer gets the facts wrong on Bush tax cuts | Gather
Also, to the dismay of "Reagan Conservatives", Laffer also got the Laffer Curve wrong. It makes me chuckle when I hear some conservatives say how "if you cut tax rates then tax revenues will increase". They say that crap over and over and say that it was proven in the '80's. What was proven in the '80's was that when adjusted for inflation tax revenues decreased significantly after the tax cuts, and it took 6 years after the tax cut before tax revenues reached the pre-tax cut amount. They then will say that the tax cuts created 6 years of growth, but the fact is that the economy was already recovering from a terrible recession BEFORE the tax cuts, and 6-8 years of economic growth between recessions is normal.

Here's the kicker, these "Reagan Conservitives" credit tax cuts on the rich for the economic growth and totally ignore the possibility that maybe the tax cuts on the middle class could have had something to do with it.
 
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