Economic Meltdown Looms

Government actions always have an effect on the economy, and right now government action is having an obviously negative effect. John F. Kennedy said that you never raise taxes in a recession if we want the economy to grow. Today’s democrats however, far from following the example of JFK have opted instead to follow the destructive path of President Obama. One detriment to the current economy is the looming tax increases come January, which the wealthy have now accepted as inevitable after Obama’s reelection.

Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.

“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.” (Original Article Here)

And we can expect a steep drop in capital gains revenue once the tax goes up. This is because stocks are risky, and therefore the payoff has to be high in order to make trading worth it. When the payoff is reduced, people put their money in safer places with a lower rate of return which are also less effective in growing our economy.

In 1986, for example, the capital gains tax rate was 20 percent but was schedule[d] to go up to 28 percent in 1987 as part of President Ronald Reagan’s tax overhaul. In 1986, capital gains collections soared to $52 billion – twice the amount as 1985. But the following year, when the higher rate kicked in, capital gains fell by 50 percent.

The money put into business expansion through the stock market is essential for innovation and economic growth. And one thing essential in maintaining businesses and jobs, is ensuring small businesses remain for posterity.

Taxes on dividends could go from 15 percent to over 43 percent. And the estate tax could go from 35 percent on estates worth more than $5 million to 55 percent on estates over $1 million.

This is especially sickening because the estate tax, aka the death tax, does not even collect enough revenue to cover the costs of collecting it! So instead we tax the money of a dead person, who had already been taxed when they earned that money. Furthermore, many small businesses are inherited, which means if someone dies and leaves a family member a business worth a mere $1.6 million they would owe $336,000 in estate taxes to the government. Without those liquid assets available, the family member would have to dismantle the business just to pay the taxes on it. Or if a $2 million family estate is left to someone’s children, they better hope they have $550,000 in cash to pay the tax. This is a job killer, and does not add to the revenue collected. It is very disappointing that those in the government still wish to implement this ineffective and damaging tax.

Another government action hurting our economy is their involvement in the housing market. Remember how Fannie Mae and Freddie Mac were going to usher in an unending expansion of home ownership and soaring house prices? Well this is just another obvious example of the failures of Keynesian economics. The free market (individuals) know best when and what to buy, so it should be no surprise that government intervention in the housing market created a bubble which burst. Marc Faber, author of the Gloom, Boom and Doom report, says that what the United States needs to do is accept the inevitable, that its going to hurt a little in the short term to get our economy growing and viable again. If we wait, he says, we could see an entire collapse of markets.

Faber identified several issues curbing an economic recovery, such as the real estate market, which he said had never been so “overbuilt.” He also said there was lots more deleveraging ahead.

“In the Western world, including Japan, the problem we have is one of too much debt and that debt now will have to be somewhere, somehow repaid or it will slow down economic growth,” Faber said. “I think we lived beyond our means from 1980 to 2007, and now it’s payback period.”

Faber told CNBC that central bank stimulus was useless and the implosion of markets was the only way to restructure the financial system. (Original Article)

Unfortunately with the people currently in government, we most likely will not be able to stop the looming tax increases, and inevitable tanking of our entire economy. The only hope is that people realize their mistakes as the collapse ensues, and what we rebuild out of the ashes will lay the groundwork for centuries of growth and innovation. I dream of a society of free markets, where the standard of living on earth reaches unimagined proportions. It can happen, but not with the current regime.

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