Much Higher Taxes
Coming in 2011
When President Reagan lowered taxes with the Economic Recovery Tax Act (ERTA) in 1981, the reversal of the country's economic fortunes was not instantaneous. ERTA's tax rate reductions didn't go into effect until 1983. Those of us old enough to remember can recall how sluggish the markets were in 1982. It wasn't until the lower rates kicked in in 1983 that the 80s truly took off. The gross domestic product surged and an unprecedented economic boom – a shot heard 'round the world – began. Reagan's tax cuts (yes, for the wealthy ... and for everyone else too) were the ultimate economic "stimulus".
In his fine article last month in the Wall Street Journal, economist Arthur Laffer writes compellingly on why Reagan's delayed tax cuts produced the remarkable growth that they did. And with equal vividness he explains why President Obama's delayed tax hikes will inevitably produce the opposite effect: an effect, says Laffer, that will lead to economic disaster in 2011. Obama's tax plans include letting the Bush tax cuts expire. That will result in a sizeable tax hike all by itself.
The point Arthur Laffer makes isn't hard to grasp. In 1982, big business saw tax cuts and better growth on the horizon, so they hunkered down and waited until the next year to expand and hire. This year, business sees higher taxes coming, and they're acting accordingly by doing everything possible to maximize their earnings now before the state takes more of what they make in 2011.
"If people know that tax rates will be higher next year than they are this year, what will those people do this year?" Laffer asks. "They'll shift production and income out of next year into this year to the extent possible." This is what we're seeing in 2010, as reports of higher corporate profits fill the media. Of course profits are higher. Business is preparing itself for next year's storm.
Add to this the fact that foreign nations are tempting American companies with tax incentives if they move abroad, and you don't need a crystal ball to predict that the flow of money and jobs overseas will grow stronger in 2011 than it is now.
And it's not just the supposedly wicked corporations that will suffer from these tax hikes. If you took Obama's word in 2008 when he told you he'd lower taxes for 95% of Americans, it's become pretty clear now – hasn't it? – that you've been taken for a fool. Corporate profits and the fat wallets of the despicable rich are just the start of what Obama plans to take from us.
All of us will be paying higher taxes, not just the money-grubbing bastards that take in more than $250K per annum.
Consider the state of a hypothetical American family just after the Bush tax cuts expire in January 2011, relatively speaking.
Imagine that you and your wife got promoted in 2010, and you've had your best years ever financially. You've made $200K combined for 2010. And you're expecting to make a similar amount in 2011.
Well, get ready to fork over more cash to the IRS for the sin of your success.
The 10% income bracket is history, you see. The first ~$16K any married couple makes will henceforth be taxed not at 10% but 15%. That $800 you set aside for a vacation? Not yours anymore. It's Obama's.
If you're in the mood, you can also bid a fond farewell to the 25% tax bracket that once applied to all your income up to $141K. Now it's 28%. That's $2,000 dollars you'll never see again. Where's it going? Into that great sucking maw inside the DC beltway.
By the way, you might be wondering about the last ~$60K you make in 2011. Last year the fed's cut was 28%. Next year it's 31%. That's another two grand that's no longer yours. Hopefully the people on welfare and food stamps will appreciate your sacrifice (but don't count on it).
So the big picture, if you care to look, is this: in exchange for all your hard work, and all those long nights and long hours, President Obama is prepared to do you the honor of taking an extra $4,500 from you. But don't worry: all those people who don't work at all will get better healthcare and more generous social programs.
All this is just because the Bush tax cuts are on the way out. But that's nothing compared to the punishment the middle class will be subjected to in the long run. According to Laffer, a lacerating litany of new tax burdens are headed their way:
- Income from offshore investments will be taxed more heavily;
- Payroll taxes are set to go up in 2013;
- The Alternative Minimum Tax (or AMT) will continue to gouge middle-income taxpayers at ever higher rates;
- So-called Cadillac healthcare plans will be taxed more (unless you're in a union);
- Local and state taxes are also on the rise.
And let's not forget Obama's plans for taxes from cap-and-trade and an American version of Europe's value added tax (VAT). How the U.S. economy is supposed to grow after absorbing these blows is something Obama has never addressed.
Reaganomics – that ideology so despised and mocked by the left – left taxpayers with more of their own money in their pockets. It incentivized American business and the country prospered. Who is Obamanomics good for, other than the state and those who depend on the state?
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