Art Laffer In Today's WSJ

You can't say Art Laffer is ambivalent about his opinions. His editorial in today's Wall Street Journal, entitled Tax Hikes and the 2011 Economic Collapse, holds nothing back.

Despite having been Reagan's economic adviser, Laffer didn't write a partisan piece. While parenthetically noting which administration has chosen to raise taxes, he concentrates almost exclusively on empirical evidence of tax rate increases and decreases, and associated economic activity.

On the strength of just this evidence, Laffer projects the coming rise in existing tax rates, and new taxes, at the dawn of 2011, into a renewed recession. Thus the article's title.

The details of next year's tax rate hikes are chilling. Did you realize that the top personal federal income tax rate rises to 39.6% from 35%, a 13% increase? Or that the highest dividend tax rate rises to the same 39.6% rate from 15%? How about the capital gains tax rate rising by 33%, from 15% to 20%?

These are stunning marginal increases which, as Laffer illustrates, are sure to have compressed economic activity into this year, in order to escape these coming higher rates.

This quote from Laffer's piece puts his opinion right out in the open,

"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."

Laffer's observations seem so simple and intuitive, yet don't seem to be generally acknowledged. He writes,

"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.

If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet."

Nobody can say Laffer hasn't placed a rather large stake in the ground with his prediction of the US economy returning to recession next year, absent relief from the coming tax rate increases.