Art Laffer’s has been around the block a time or two. He was on Reagan’s Economic Policy Advisory Board. In a recent Wall Street Journal article, Laffer makes the case that the expiring tax cuts are going to have a significant negative impact on the economy going forward. The highest federal income tax rate will go from 35% to 39.6%. The current dividend tax rate of 15% will revert to whatever your ordinary income rate is (up to 39.6%). Meanwhile, the capital gains rate will go from 15% to 20%. Laffer argues that income tax policy changes behavior. Thus, both businesses and individuals will recognize more income and produce more in 2010 before tax rates go up. He goes on to argue that this will make 2010 appear to be a better year than it really is with inflated income and sales numbers ensuing. He even goes so far as to predict a double dip recession in 2011. While I would disagree with his prognostication regarding a double dip, I think he brings up some helpful considerations about the effect of taxes. He uses 1981 as his case study. At that time, Ronald Reagan, with bipartisan support, began a series of tax cuts that led to one of the longest periods of economic expansion in history. This look at the past offers a strong argument for government officials to consider. It may seem counterintuitive to lower taxes when you have deficits. However, Reaganomics proponents espoused that net tax revenue actually increased because the income of Americans will increase (more money stays in their pockets). Though the tax rate may be lower, but income multiplied by that tax rate will be higher -- thus leading to higher tax revenue which the government ultimately needs. Maybe it's time to pull from the Reagan playbook. Our current trajectory of higher tax rates is scary for all of us. http://online.wsj.com/article/SB10001424052748704113504575264513748386610.html