Monday, July 12, 2010

Don't Be Talking No "Double Dip Recession"

For it to be a double dip, there has to be a real recovery starting and there is no such thing.  The GDP has not recovered, so there can't be a double dip.  Denninger at Market Ticker addressed some of this last Friday, July 2.  He makes the case that the only way we can get out of this mess is to cut the Federal Government by 60%(!).  In the administration of someone who wants to grow the government enormously, that is not going to happen.  Can you imagine 2 out of every 3 government employees going home?  Can you imagine Dr. Berwick, who obviously doesn't understand economics 101, successfully improving the health care sector.  Can you imagine the financial industry takeover that's going down right now making anything better?

In addition to this, a massive problem is looming.  The so-called "Bush tax cuts for the rich" which really helped the lowest incomes the most*, are expiring at the end of the year.  Economist Art Laffer predicts a further collapse of the economy as those tax penalties start hitting.  People only have so much money.  Money they send the government cannot go to the business sector, thereby slowing the growth of jobs. It can't be any other way. 

You may have been led to believe that only individuals in the top two brackets will face higher federal income taxes when the Bush cuts go bye-bye. Not true! Unless Congress takes action and President Obama goes along, rates will go up for everyone -- not just a sliver of the wealthiest Americans. The current six rate brackets of 10%, 15%, 25%, 28%, 33% and 35% will be replaced by five new brackets with the higher rates of 15%, 28%, 31%, 36% and 39.6%. Just a few months ago, it seemed like a safe bet that Congress would make a fix to keep the existing 10%, 15%, 25% and 28% rate brackets to help out lower and middle-income folks. That bet is now looking iffy.
*Note that the lowest bracket tax rate goes from 10% to 15%, or a 50% increase in their taxes.  The highest bracket goes from 35 to 36.9%, or 5.4%.  The lowest income people will be hit the hardest.  In this analysis from the Tax Foundation, you can see how the share of tax liability went up for the top quintile, and down for the others under the Bush cuts. 

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