Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Thursday, June 17, 2010

A Very Taxing Situation!

Our last blog focused on the views of several noted Wall Street bears (Doom and Gloom Ahead?). Many had correctly predicted past crashes, although in some cases they were significantly premature. All were very negative about our future economic prospects.

We’ve been reading a number of articles lately regarding what’s coming down the road with respect to taxes. If there was any one thing that would lend credence to the bears’ negative views, it’s the burden taxes will have on us going forward.

New complexity and taxes will be added as a result of the recently passed healthcare bill. We’re still in limbo with respect to estate taxes. Will the estate tax be re-instated retroactively to January first of this year? What will the rates be? What exemption will be included? The estates of those who have already died this year are in limbo. Will they pay no estate tax yet receive only a limited step-up-in-basis? Will many file law suits if Congress reinstates the estate tax retroactively?. What a mess!

And, it’s not a ”Laffing” matter according to Arthur Laffer (noted economist, Chairman of Laffer Associates and author of “Return to Prosperity: How America Can Regain Its Economic Superpower Status”) in a June 7, 2010 article in the Wall Street Journal titled “Tax Hikes and the 2011 Economic Collapse”. Perhaps we should have included Mr. Laffer in our doom and gloom blog.

In his article, Mr. Laffer points out that people and corporations will adjust the timing, place and type of their income to minimize taxes. He points out that “the nine states without an income tax are growing far faster and attracting more people than the nine states with the highest income tax.”

Unless Congress acts, federal state and local taxes will rise at the beginning of next year, due to the expiration of the Bush tax cuts. Mr. Laffer says that: “Tax rate increases next year are everywhere.” He goes on to say: “Today’s corporate profits reflect a shift into 2010. These profits will tumble next year, preceded most likely by the stock market.”

He also noted: “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.” That’s why the economy is as good as it is this year, he says. If he is right and Congress does nothing to address these tax issues before year end, Mr. Laffer and the bears we discussed in our last blog may well be right about a severe downturn in 2011.


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