I've had questions about why I think this decline will be severe. I am expecting economic damage in 2011 and one of the reasons is taxes. The following is a synopsis of this view from Arthur Laffer:
Federal tax rates are going up next year for income, capital gains, dividends, and estates, along with several other categories. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere. Because the economic future is filled with taxes almost everywhere one looks, much of the capital and spending activity has been shifted from 2011 and is occurring this year, 2010. This is to avoid the coming squeeze. Laffer believes the evidence is strong that the slight rebound in the economy is solely due to the shift from 2011 to 2010. " ...the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010."
Because of this reaction from the private sector in anticipation of draconian tax policies during and after 2011, Laffer believes that "When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession."
The fact that 2nd half 2010 is significantly slower than economists were dreaming, er. forecasting means that economic activity being supported here due to investment shift is much weaker than reported.