The Panic of 2011
If you’re old or sick and have a lot of money, I suggest taking a trip out of the country, away from your heirs, until January 1, 2011. And don’t tell them where you’re going. On that date, the death tax for rich folks goes from the current 0 percent to 55 percent. So your heirs will get less than half of what they would have if you went to the Great Walmart in the Sky a day earlier.
Deep-sixing the death tax is part of the cancellation of most of President George W. Bush’s 2003 tax cuts. Republicans in the White House and Congress, in their Karl Rovian sneakiness, put a termination date on their otherwise sensible tax cuts. The reason is now clear: The tax increases are being used in campaigns against Democrats who won’t extend the tax cuts.
But wait, there’s more. In 2011, the top income-tax rate will rise from 35 percent to 39.6 percent. The capital-gains tax will jump from 15 percent to 20 percent, an increase of one third, choking off vital capital needed for an economic recovery. And unlike the income tax, the capital-gains tax is not indexed to inflation.
Individuals and businesses are taking profits in 2010 to avoid paying higher 2011 taxes. They will stop doing that on January 1. The tax increases will trigger the Panic of 2011, the second dip of the Great Recession.
Things are going to be worse than they were in the Great Depression. Back then, the country’s moral fiber was stronger. Far fewer people had mortgages. There were no credit cards. Since the 1930’s, the U.S. industrial base, which was still by far the world’s largest, has greatly eroded, and it soon will be surpassed by China’s.
For America’s industrial decline, my Chronicles colleague Tom Piatak blames free trade. I blame the lack of a gold standard, excessive regulations, and high taxes. I especially blame the 1971 “Nixon Shock,” which ended the $35 gold standard, and the ensuing inflation that jammed the middle class into upper-income tax brackets. But both of us want America to have strong producing industries.
By contrast, most politicians, economists, and bankers are happy with an economy based on folks foreclosing on one another’s houses. I’m not joking. One guy I know puts food on a modest table by getting paid one dollar each for pictures he takes of foreclosed houses; 125 pictures per day equals $125, barely enough to survive. Another man I know works for a mortgage company, paying families $1,500 each for not trashing their foreclosed homes before they go and live on the streets.
The economists also tell us that in the summer of 2009 a “recovery” was magically conjured up by President Bush’s $700 billion TARP stimulus, President Obama’s $827 billion stimulus—all of it borrowed money—and Fed boss Ben Bernanke’s doubling of the money supply in 2009.
But the “recovery” money was used to bail out Wall Street at the expense of Main Street. Having a hard time avoiding foreclosure? Tough. Wall Street not only grabbed your money but ran up trillions of credit in your name. Your grandkids will be paying down the debt.
During the “recovery,” the official unemployment rate has remained close to ten percent. That number is bogus. To make the unemployment numbers look better for his 1996 reelection bid, President Clinton removed people who had despaired and quit looking for work. If those numbers are included, as they are on Shadowstats.com, unemployment is really above 20 percent—a depression level by any measure.
Another major weight on the economy is the Iraq war, with a cost of up to five trillion dollars, as calculated by Nobel economist Joseph Stiglitz; he includes not just “defense” spending but the cost of VA benefits for wounded veterans and cumulative interest on the money borrowed from China and Japan to pay for the war. As during the Vietnam War, we’ve learned the hard way Sun Tzu’s warning: “There is no instance of a nation profiting from prolonged warfare.”
Meanwhile, Social Security ran into the red in 2010, seven years earlier than expected, piling higher a national debt that is now rising rapidly above $13 trillion. Obama just socialized medical care, 17 percent of the economy, bringing untold inefficiencies and suffering. For the post-election lame-duck session, Democrats are lusting to pass a “carbon-tax” bill to fight a global-warming threat proved bogus by Climategate. And Republicans are pushing Obama to nuke Iran’s alleged nukes, which could send oil prices up to $300 per barrel.
As we saw on September 15, 2008, when the Lehman Brothers bankruptcy precipitated the Panic of 2008, a recession or depression starts with a triggering event that detonates thousands of pounds of TNT-infused economic rot. The next trigger will be pulled on January 1. Even if the Democrats running Congress pass an extension of the Bush tax cuts to reduce their losses in the November elections, they will mess it up somehow. The trigger will still be pulled.
I hope I’m wrong.
This article first appeared in the September 2010 issue of Chronicles: A Magazine of American Culture.