“Top Economist Arthur Laffer Predicts Collapse of 2011 US Economy”

 “Top Economist Arthur Laffer Predicts Collapse of 2011 US Economy”
by Terrence Aym

       
“A dire warning has been issued by one of the world's top economists. Arthur Laffer, author of several important books on economic theory including his latest, "Return to Prosperity: How America Can Regain Its Economic Superpower Status" was also an adviser to the Reagan Administration during the 1980s and a member of the Economic Policy Advisory Board. His economic models have been proven to work and withstood the test of time. Now Laffer has declared that the US economy is heading for a big fall early in 2011. The economist, best known for his economic model called the 'Laffer Curve," came to national prominence when his model was adopted by Ronald Reagan in an effort to turn the economy around after the disastrous economic policies of Jimmy Carter.

Back in the late 1970s the media kept track of 'the misery index' an informal gauge of inflation, stagnation and taxation that put a damper on the economy for years. Laffer's recommendation—to cut federal taxes significantly and roll back the rate of government spending—was employed in 1981 after Carter's bid for a second term was roundly routed by an angry American electorate. Laffer's 'prescription' created an economic boom that carried into the Clinton presidency. It also surprised many critics of the model when it achieved what Laffer had predicted: higher revenues to the treasury despite the deep tax rate cuts.

Now Arther Laffer has analyzed the direction of the federal government over the past two years and hears alarm bells going off. The savvy economist has studied the potential impact of the historic debt, an economy hovering just above a depression, and the building pressure to raise interest rates when inflation rises in the future, and compares the ship of state to the Titanic. "Today's corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market," writes Laffer in the Wall Street Journal article, Tax Hikes and the 2011 Economic Collapse.

Laffer calls attention to the one thing that has kept the economy partially afloat, as poor as the economy has been: the Bush tax cuts. When they expire (on January 1, 2011), "federal, state and local tax rates are scheduled to rise quite sharply." Dividend tax will skyrocket from 15 percent to a whopping 39.6 percent, the capital gains tax will increase 25% and the estate tax will jump from zero to 55 percent. These taxes—a triple whammy to the economy—will serve to further depress business growth and hiring, depress real estate further and add an even greater burden on the ability of the consumer to spend discretionary income, which will sink like a rock. To all that must be added the re-introduction of the infamous "marriage penalty" that could lead to more home foreclosures.

If all that is not bad enough, tax rates will be raised further on income earned outside the US, payroll taxes will rise in 2013 squeezing the middle-class wage earner more, the alternative minimum tax will affect people at lower income levels and taxes are scheduled to be imposed on so-called "Cadillac health care planes." As Laffer puts it, "State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere."

Because the economic future is filled with taxes almost everywhere one looks, much of the capital and spending activity has been shifted from 2011 and is occurring this year, 2010. This is to avoid the coming squeeze. Laffer believes the evidence is strong that the slight rebound in the economy is solely due to the shift from 2011 to 2010. "...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."

Because of this reaction from the private sector in anticipation of draconian tax policies during and after 2011, Laffer believes that "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." Depending on the condition of Western Europe at that time, the possibility exists that the train not only "goes off the tracks" but off the cliff and the US plunges into a steep depression worse than that experienced during the 1930s.

Arthur Laffer is not a traditional "doom and gloomer." Nor has he ever been some wild-eyed conspiracy theorist. His economic models in the past have always been right on the mark and his warning is sage advice coming from a measured man who strives to employ common sense and balance. A pragmatist and realist, Laffer's warning should be heeded. It's not too late to forestall approaching disaster. If we do not act, he writes "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."

- http://www.helium.com/

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