The 2011 Tax Tsunami

Gary Wickert
Pajamas Media
11/18/2010

…The cause and effect phenomenon of tax cuts resulting in increased federal tax revenues is difficult to figure out only for those who have never run a business, met a payroll, or read a balance sheet. It was, in fact, one of the most famous Democrats in history who memorialized why this is. In the January 1963 Economic Report of the President, John F. Kennedy set into motion the “Soak-the-Rich Catch-22″ currently frustrating the Obama regime when he said:

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle — workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit — why reducing taxes is the best way open to us to increase revenues.

But the Democratic Party long ago stopped being the party of JFK, who today would be somewhere to the right of George W. Bush. Barring a Democratic epiphany, the largest tax hikes in the history of America will soon take effect courtesy of an unpopular president and a Congress with a 14% approval rating. They will hit a listing American economy in three tsunami-like waves beginning on January 1, 2011.

Americans for Tax Reform has summarized the Democrats’ scheduled tax hikes in three separate tidal waves, the first of which will hit shore on January 1, 2011:

First Wave

Bush Tax Cuts Expire. Congress didn’t even have the strength of character to stay and vote on extending the Bush tax cuts before running home to protect their professional political careers. These tax cuts all expire on January 1, 2011. Thereafter, the top income tax rate will rise from 35% to 39.6%, the same rate at which two-thirds of small business profits are taxed. The lowest rate will rise from 10% to 15%. All the rates in between will also rise. Somewhere I seem to recall a promise about tax cuts for 95% of “working families.”

Higher Taxes on Marriage and Family. The “marriage penalty” (narrower tax brackets for married couples) starting with the first dollar of individual income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

Death Tax Returns. 2010 is a great year to die; there is no death tax. For those dying on or after January 1, 2011, however, there is a 55% top death tax rate on estates over $1 million. A person leaving behind a home and a 401k could easily pass along a death tax bill to their family.

Higher tax rates on savers and investors. The capital gains tax will rise from 15% this year to 20% in 2011. The dividends tax will rise from 15% this year to 39.6% in 2011. These rates will rise another 3.8% in 2013.

The second wave — summarized by Joan Pryde, senior tax editor for the Kiplinger letters — will follow closely on the heels of the first…

…The last thing our struggling economy needs is higher punitive taxes…

..According to [Arthur] Laffer, 2011 will be the economic equivalent of 2012 in the recent movie of the same name. This tsunami of tax increases will devastate American businesses and will likely be followed by every economist’s nightmare, a double-dip recession — a recession followed by a short-lived recovery, followed by another recession. The promised recovery of 2010 will instead feature a return to recession, stripping mainstream economists of any remaining credibility and perhaps making 2011 the worst economy in U.S. history. 

According to Laffer, “Tax rate increases next year are everywhere.” Laffer says the coming hikes — coupled with the prospect of rising prices, higher interest rates, and more regulations next year — are causing businesses to shift production and income from 2011 to 2010. In other words, 2010 income will be inflated above where it otherwise should be and 2011 income will be dramatically lower than it otherwise should be. Not surprisingly, the nine states without an income tax are “growing far faster and attracting more people and businesses than are the nine states with the highest income tax rates.”…

Read the entire article at Pajamas Media

H/T Instapundit

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