Economic performance which to some folks shows a glimmer of hope right now (despite the horrible May jobs report), is likely to fall off the tracks into a double dip recession for 2011.
How do we know this? Simple, behavorial response to tax policy. Here is what is coming in your future. Read it all here.
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.
This will change people's behavior. For example, 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."
So, what is happening in 2010 and what will happen in 2011?
..... 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.
Translation: the feeble gains for 2010 are due to income shifting into this year in anticipation of the tax laws of next year (and sham Census worker hiring).
Watch and prepare for an awful 2011!
2 comments:
Sad to say - this sounds on target.
The anticipation of the collapse of our economy at the hands of unethical power hungry politicians is squeezing the confidence out of me. Is there hope of recovery? Is there hope Americans can elect stronger men to resist the temptations that will come along? Can we overcome the corrupt units built so strong?
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