Double Dip?
David Weinberger /
Tax hikes helped the U.S. economy go from downturn to depression in 1932.Throughout the mid-30s there were glimmers of economic recovery until taxes were raised again in 1937, helping send the economy into another recession. So, why would it be smart to raise taxes now during such a fragile economic recovery?
Art Laffer, once a member of President Reagan’s Economic Policy Advisory Board, explains why tax hikes in 2011 are going to depress output, production and reported income. The result, he says: a dreaded double-dip recession.
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.