Economy Heading for Collapse in 2011, thanks to Sunset of Bush Tax Cuts
From the WSJ:
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.
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.
In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.
But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
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.
In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.
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.
Bottom line, don't be fooled by what appears to be a recovery. It is just everyone frontloading income under these tax laws so they won't have to pay under Obamatax laws. Incentives matter, so do disincentives. You disincentivize profit, you make people cut costs and cut jobs.
Obama and Fascist Dems in Congress Seek to Destroy Free Speech
Exhibit A--The DISCLOSE Act, which does not disclose anything except contempt for free speech and common sense governance. It is a huge union bailout. Groups are urging its defeat. More from the Corner. It's like the Alien and Sedition Act all over again.
Exhibit B--The Killswitch for the internet. Bad Idea. Say hello to Soviet era suppresion.
First He Lost Chris Matthews, Now Jon Stewart?
Even people with feelings up and down their legs are now turning on Barry Obama and realizing he lies.
If You Like Your Healthcare Coverage, Too Damn Bad--Love, Barry and Nancy
Newsflash! Obama lied....and the grass is green, sky is blue. Oh yeah, and he bows before the labor unions like the dog he is.
Under new rules, your employer can't change insurers without losing your health plan's exemptions from ObamaCare regulations.
That is, unless a union negotiated your coverage. The administration has granted a special exception to those — and apparently only those — health care plans.
A health plan is deemed "grandfathered" if it was purchased before March 23, 2010, and no major changes are made later. Such plans are exempt from most ObamaCare requirements.
But new rules, officially announced Monday, make it hard to keep that status. IBD previously reported that the Obama administration estimates that 51% of all employers — 66% of small firms — would have to relinquish their current coverage by Jan. 1, 2014.
Hail The Collective
But the rules that limit grandfathering are less stringent for unions. Under the regulations, if "an employer or employee organization enters into a new policy, certificate, or contract of insurance after March 23, 2010 ... then that policy, certificate, or contract of insurance is not a grandfathered health plan."
However, that rule does not apply to health care plans that are part of collective bargaining agreements negotiated by unions and set up by March 23, 2010. As long as the collective bargaining agreement is in force, the health plan retains its grandfathered status even if the employers and unions agree to change insurance carriers.
The regulations include an example of a union-negotiated plan that enters into a new group policy "with Issuer Y for the plan year starting on January 1, 2011." In this case, "the group health plan, and the group health insurance policy provided by Y, remains a grandfathered health plan."
If this were Bush, they would have impeached him by now.