Why top economist Arthur Laffer predicts collapse of 2011 US economy

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A dire warning has been issued by one of the world's top economists. Arthur Laffer, author of several important books on economic theory including his latest, "Return to Prosperity: How America Can Regain Its Economic Superpower Status" was also an adviser to the Reagan Administration during the 1980s and a member of the Economic Policy Advisory Board.

His economic models have been proven to work and withstood the test of time. Now Laffer has declared that the US economy is heading for a big fall early in 2011.

The economist, best known for his economic model called the 'Laffer Curve," came to national prominence when his model was adopted by Ronald Reagan in an effort to turn the economy around after the disastrous economic policies of Jimmy Carter.

Back in the late 1970s the media kept track of 'the misery index' an informal gauge of inflation, stagnation and taxation that put a damper on the economy for years. Laffer's recommendation—to cut federal taxes significantly and roll back the rate of government spending—was employed in 1981 after Carter's bid for a second term was roundly routed by an angry American electorate.

Laffer's 'prescription' created an economic boom that carried into the Clinton presidency. It also surprised many critics of the model when it achieved what Laffer had predicted: higher revenues to the treasury despite the deep tax rate cuts.

Now Arther Laffer has analyzed the direction of the federal government over the past two years and hears alarm bells going off. The savvy economist has studied the potential impact of the historic debt, an economy hovering just above a depression, and the building pressure to raise interest rates when inflation rises in the future, and compares the ship of state to the Titanic.

"Today's corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market," writes Laffer in the Wall Street Journal article, Tax Hikes and the 2011 Economic Collapse.

Laffer calls attention to the one thing that has kept the economy partially afloat, as poor as the economy has been: the Bush tax cuts. When they expire (on January 1, 2011), "federal, state and local tax rates are scheduled to rise quite sharply." Dividend tax will skyrocket from 15 percent to a whopping 39.6 percent, the capital gains tax will increase 25% and the estate tax will jump from zero to 55 percent.