Arthur Laffer is predicting the second dip of a double dip recession to hit in 2011 when the Bush tax cuts expire. Says, Mr. Laffer, "It isn't rocket surgery, as the Ivy League professor said."
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.
Incentives matter, but don't expect the rocket surgeon in the White House to figure any of that out very soon. His only interest is solidifying Democratic power, anyway. That means he'll be focused on how to make the most political hay out of the next phase of the great recession – not how to end it.
Comments