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The Income-Shift Is Reversed

Typically, wealthy individuals and investors will work hard to delay declaration of income and to push taxes off as far into the future as possible.  The present value of taxes paid a year from now are less than paying the taxes today.

But over the last several weeks, I have had casual conversations with entrepreneurs and individuals from the moderately to very wealthy, and almost to a one they have said they are trying to pull income into 2007 and 2008 in anticipation of potentially large increases in capital gains tax rates and the rates at the top of the bracket.

On a different topic, a friend and I depressed ourselves in a bar last night laying out the case that the next decade may in many ways be a repeat of the 1970s.  Already, we see both parties reverting to the economic prescriptions they promoted in the 1970s.  Further, this week may herald the beginning of an inflationary monetary and fiscal policy combined with government enforced structural limits on growth (e.g. Co2 abatement policy, trade protectionism, price controls, high marginal tax rates and capital gains tax rates, lending restrictions, etc.)  We are seriously discussing nationalizing a major industry (health care) for the first time since the 1970's (when nationalizing oil was seriously considered).  Currently we have a Republican President who is less market-oriented than his Democratic predecessor, and at least as clueless on economic issues as were Nixon and Ford.  All that's left to do is elect a new Jimmy Carter in 2008...

Posted on January 23, 2008 at 12:04 PM | Permalink

Comments

question: As "not market oriented" as Bush is, is he more or less market oriented than Gore or Kerry? The choice of which republican candidate was certainly up to us in any primary but the primary is not the election choice to lament. In the end we had to choose the lesser of two evils. Did we make the right choice?

Posted by: Chuck | Jan 23, 2008 12:18:00 PM

Chuck, I think the Bush comment is supposed to be indicative of where the culture is headed rather than whether or not Bush was the lesser of two evils.

Posted by: Jody | Jan 23, 2008 12:29:51 PM

Honestly, now, Bush wasn't ever the lesser of any choice between evils. Even if it wasn't clear to everyone at the time of election, surely it is clear in hindsight. Have you heard that we've built a prison in Cuba expressly for the purpose of holding prisoners where we are not accountable to any laws, even our own? And, that when support was waning for said prison, we moved the really bad guys from our secret prisons to that prison? Bush is a failure on the economy too, but stupid ethanol subsidies somehow don't seem as important to me any more. Thank god he's an incompetent boob. Imagine what hell we'd be living in if he was competent.

Posted by: kebko | Jan 23, 2008 1:56:11 PM

I too have been thinking about the ominous paralells between now and the 70's. Watch CNBC any night and see the commentators screaming for the Fed to re-inflate the economy. Where is Paul Volcker we need him.

Posted by: Jim K | Jan 23, 2008 1:59:45 PM

Your referral to the 1970s brings up a fear I have had. I'm a government employee, and a baby boomer who is planning to retire in the next two or three years. The government should have been aware of the baby boomer crunch since the 1950s and 1960s, and common sense would have indicated that they do something about the retirement crunch, like raising the retirement age. The acutal raise in age to get full benefits was a miniscule 2 years- from 65 to 67, and we haven't even reached that 67 yet. I expect the government to inflate the currency to meet the demand, and have been expecting a 1970s inflationary economy to start building around 2010.- A. McIntire

Posted by: Alan McIntire | Jan 23, 2008 6:22:26 PM

Warren, your friends are plotting to engage in tax-shifting as described by Martin Feldstein. Anticipating that higher taxes will be imposed by whomever is elected President in 2008, those of us who can accelerate or defer income from year-to-year will react accordingly and take/declare our income in a way that will minimize taxes. With respect to the "Laffer Curve" Feldstein questioned whether increases in tax revenue seen following tax cuts were "real" (due to econimic growth) or just the result of tax-shifting. With higher income and capital gains taxes on the horizon we'll surely hear more about this subject.

Posted by: Tony Suruda | Jan 23, 2008 7:03:44 PM

I must ask... am I the only person who has a brother that eschews football predictions, bitching/bragging about the family, or speculating: man made vs. real on that woman over there to discuss economics in a BAR?!?

Posted by: coyote little sis | Jan 24, 2008 4:43:40 AM

I've said for over a year that some of the increase in private equity deals is anticipation of an increase in the capital gains tax. I know it was for my company.

Posted by: Jeff | Jan 24, 2008 6:35:43 AM

He did propose a lot of budget cuts to something like 140 programs. Unfortunately, being reamed on the war because of oil, it appears he completely gave-up. About the only good thing is the high crude prices are subsidizing every alternative known to mankind. For instance Shell is working on a algae farm in Hawaii, something I thought would take a few more years.

Posted by: Ian Random | Jan 24, 2008 10:12:48 AM

Never fear coyote little sis, he did brag about his folks, sisters, wife, and kids, and we did talk about football. No man made vs. real, though.

Posted by: Scott | Jan 24, 2008 11:31:12 AM

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