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Payroll Tax Cuts > Income Tax Cuts

March 8, 2011

We’re in the beginning stages of what could be a gigantic economic boom.  Just recently, we had knockout numbers in two different reports.  These numbers weren’t good, they were great.

First, the Personal Income numbers were stupendous.  The real personal income number was in the top 5% of the last 20 years.  More importantly, it is clear from the personal income numbers that the 2% Payroll Tax reduction is a much greater tax reduction than the first round Obama tax cuts.

From the numbers, it appears that this tax cut added $44bn to personal income in January.  Annualized, this is a remarkable $528bn to personal income!  January is typically a large month for income, so we’re not going to see quite that much of an increase in PI.

But even rounded down significantly, this change is on the roughly 3% of GDP.  That is a gigantic difference in personal income.

The estimated impact of the 2% payroll tax cut was supposed to be $120bn

Because PI is calculated as a change from last month, we’re not going to see the huge difference recur again and again.  However, the benefit from this tax reduction will be ongoing and huge.

Then, the Chicago ISM crushed it like Frank Thomas used to back in 1995.

The Chicago ISM came out with its best reading in 23 years.  New orders were the best since 1983.  Order backlog highest since 1994.  This report was really, really good.

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