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Today's corporate profits reflect a production and income shift away from 2011, when tax rates...
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Monday, June 7, 2010, 6:15 PM ETToday's corporate profits reflect a production and income shift away from 2011, when tax rates will rise, into 2010, Arthur Laffer says. The result will be plunging profits and stocks next year. Remembering surging growth rates when Reagan's tax cuts took effect, Laffer says "Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011."
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Of course, what do you expect from an executive branch that doesn't understand what a P/E ratio stands for?
All I can say is duh.
Major pain and millions more lost jobs are being mandated by our caring, responsible Congress.
There were major income tax rate increases in the mid 1970's (inflationary bracket creep) and the 1990's (Cinton's rate increases) but they did not stop either the economic recovery, or the market.
Other macro factors helped to offset the tax increases. We had oil prices collapse (acts like a tax cut), we had Fed interest rates lower or steady(created credit growth), remember the peace dividend(think fed gvt spent it but there was a perception in market place), and of course the dot boom/technology innovation that where all elements that covered up/overcame the Bush/Clinton tax increases in the 90's.
Not seeing that with Obama's policies or the macro economic factors that would drive inovation to overcome the federal government revised tax and spend policies.
Companies have increasing pricing power, increasing profit margins, productivity gains, outsourcing, expanding volumes, consolitaion going on - but look at the jobs situation! I am not taking into consideration any exports, since our imports outpace our exports.
Finance and Government are the only "growth industry" in America. If companies don't want to pay americans - how do they expect to make more money? Isn't growth supposed to come from more people joining the middle and upper classes?
Inflation adjusted incomes have been going down for most people in the last 10 years (using Headline inflation), that should cause people to spend less or borrow more. Both are bad.
As will these ones.
Clinton's term prospered because of TWO once-in-a-lifetime events - dotcom and Y2K. Those two temporary industries added MILLIONS of high paying jobs. Which then disappeared by 2001.
Bush's term "prospered" because of TWO events - homeland security and cheap and easy credit.
Wake UP. Increasing taxes NEVER helps. Never. As we all soon will find out.
Hey, if we're going to have an FDR-like depression and extended malaise, I have only one question: who's going to start the next world war to bail out the economy this time, because nothing that was done by policymakers had any positive effect last go-round.
Frankly, we better not have some deflationary depression, now, because the governments of the world have already flooded the system with currency. This should lead to inflation, if anything, not some depressing, deflationary funk that everybody keeps predicting. In the '30's, monetary policy was exactly the opposite of now, so I don't expect similar results unless --and this is a big "unless" in our relentlessly pessimistic world-- society, aided and abetted by our wonderful media, becomes so despondent that nobody cares about how much money is actually available to do things.
It really boils down to one big case of societal depression, not classical economic depression. There's utterly no systemic shortage of money, now.
There's plenty of capital sitting around. Most people are now afraid to borrow because they don't want debt burdens, and most banks are afraid to lend because they fear not getting paid. It's all a self-feeding, self-perpetuating, self-fulfilling cycle. This is some surprise?
The banks are utterly swimming in money, right now. They just reported all-time record-level deposits. (This isn't my opinion; it's hard, cold, documentable fact, just reported in the news a couple days ago.)
The only thing that prevents commerce and stalls dollar velocity is plain, old human fear. Look around; people are now petrified of everything: Europe, euro, China housing, commodity busts, Gulf oil leaks, deflation, you name it. Heck, why hasn't somebody posited, yet, that we'll be hit by an asteroid soon? And, heaven knows, there are plenty of traders will to perpetuate doom to profit upon it.
In one regard, FDR was right about one thing: "the only thing we have to fear is fear itself."
if the casino is so rigged, why to do you keep playing?
Same idea here, except that it's taxes this time. Expect many tech companies to load their offshore units with cash, spin them off (with shared management), and after the Obama fiscal collapse, buy the floundering US units on the cheap as subsidiaries. Remember that under this scenario, there will never be a unitary US tax applied to the offshore units' profits.
Hmmm...this could be a good hedge-fund play. Seven months to Jan 2011, kids.
Hello Jimmy Carter 1970's style stagflation mediocrity, all coming two years after the closest thing to a Depression since the Great Depression.
Bright spot? Disco and bell bottoms probably won't come back.
During the Clinton 8 years, we had tax increases, but the US economy gained 22 million jobs, nonetheless. The stock market boomed, so much so in fact that Alan Greenspan called it "irrational exuberance". At the end of the Clinton term, the federal budget was in a surplus.
During the Bush 8 years, we got 3 tax cuts, but job growth remained sluggish. Alan Greenspan decided to help out. He kept short term interest rates below inflation for 3 years, starting the housing bubble. Eventually, the economy gained 6 million jobs, but all of these were lost, and then some more, in the housing bust. In the Bush term of office, budget deficits became chronic, and by the end of it, the US public debt had doubled.
Conclusions: A) We must work to reduce the federal deficit, and, B) there is zero correlation between tax cuts and job growth, and, by extension, between tax cuts and stock market gains. To the contrary, tax cuts create budget deficits, which in turn lead to financial crises and recession.
I find it amazing that it appears we are making the same mistakes that were made in the past.
Deficits are created by spending more than you bring in. It is the increase in the federal government and the programs/policies it administers that causes ballooning deficits.
And please would some of you stop talking about how Clinton righted the ship because of his management of tax policy. A few things happened during Clinton's 8 years and none of them, even the great expansion of the Chinese economy, was as ground-breaking and impactful as the introduction of the INTERNET.
Doesn't anyone remember companies like PETS.COM that were worth $100 million dollars virtually overnight even though they didn't have any earnings and narily a business model to look too? Don't you think the billions and billions of wealth that was created by the introduction of the internet helped Clinton's economy out just a little?
You take away the internet being introduced under Clinton and shift it to Bush II, you put the accounting scandals of Enron, WorldCom and their ilk at the beginning of Clinton and not the end/start of Bush II, you put 9/11 and homeland security impacts/costs on Clinton and not Bush, and you have a completely different situation.
Finally, does anyone notice how the Chinese economy has flourished since the government became less involved in economic planning and influence?
When my wife was a child and a citizen of China, she didn't even have a family washroom - no private shower, toilet etc. She had to shower at her mother's work and use the facilities outside of their home. She didn't have a fridge, a television, car, nor had she even consumed a simple can of soda. The first time she drank 7up, she thought it was the best thing she had tasted in her life. My wife's family couldn't afford air-conditioning, heat in the winter or decent cuts of meat. And all this, despite the fact that her mom held a high level management position within a large organzation in the biggest city - Shanghai. They weren't peasents tending to farm land and driving Ox.
Now, after the great expansion that took off in the 90's and has continued today, her family's life and so many others is 180 degrees different from the past.
How can anyone with an ounce of common sense and honesty, look at China's growth and success, which is directly a result of a more free marketplace with less government, and then turn around in the same breath and claim that higher taxes and more government involvement (which comes from higher taxes) is something that we should strive for because it supposedly worked for Clinton? Tell me how? This isn't the huffington post ladies and gentlemen, this is SA!!! I expect better from some members here.
To me, Art has zero credibility.
This suggests that producers somehow control demand, as in, "taxes are going up next year so let's build (production) and sell (income) more units now instead of next year".
How do you create current buyers for your product based on future taxes?
How do you compete in a "world" market when your competitors DON'T HAVE the same taxes and mandates?
Buyers? We can't even buy the raw materials at the price China sells them to our buyers.