Op-Ed in the WSJ yesterday:
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.
Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.
Also, 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. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. 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.
And, as if Laffer was writing the screenplay to Atlas Shrugs on Wall Street, from the NY Post this morning:
Fast Eddie’s play: Hedge mogul beats DC in slick $64M tax scheme
Billionaire hedge fund mogul Eddie Lampert has outsmarted lawmakers and come up with a way around a planned tax hike on earnings for hedge funds and private equity firms — saving himself about $64 million.
The 47-year old financial whiz side-stepped the likely higher tax bill by having his Greenwich, Conn., hedge fund firm, ESL Partners, distribute roughly $837 million in stock to him personally last week — a move that will allow him to pay the lower capital gains tax rate compared to the higher regular income tax rate had the fund distributed cash.
Of course, Lampert’s hedge fund firm may have made the distribution for a number of reasons and his spokesman Steve Lipin declined to comment. Still, the pros say it sure looks like a snub at lawmakers’ plans to raise his tax bill.
Street insiders expect a parade of financial titans to follow Lampert’s lead, which could throw a wrench in lawmakers’ plans to plug the deficit with additional tax revenue.
Oh, Washington, you are adorable.
First, you got Iran dodging sanctions like a butterfly. Now, this.
Well, they didn’t get to be called Masters of the Universe for being stupid.