By Peter Morici
 |
| pakistankakhudahafiz.com |
Washington has always made lots of things—bureaucratic regulations
and hot air to name two—and it even prints money that instigates
inflation. Now in the names of fairness and fiscal responsibility,
President Obama and Speaker Boehner are cooking up a deal to avert the
fiscal cliff that could easily thrust the economy into a deep recession.
Taxes are going up.
Taxes are going up.
Just about everyone agrees the two percentage point temporary
reduction in the payroll taxes will lapse—it is too much of a drain on
the solvency of Social Security. That will raise about $125 billion in
revenue for 2013.
It is now apparent the Bush era income tax reductions for many
wealthy families will not be extended. Mr. Obama is now willing to
settle for raising rates on families earning over $400,000, whereas Mr.
Boehner wants to set the threshold at $1 million. The cutoff that will
likely emerge is about $500,000 and would generate another $50 billion a
year in income taxes.
Clearly, Messrs. Obama and Boehner know a lot about getting elected but on economics they are spread thin. Like the sorcerer’s apprentice, they are courting disaster.
The administration would also like to limit the value of itemized
deductions and other tax breaks, including the tax-free status of
municipal bonds. Mr. Boehner is inclined to go along, and if he accepts
the president’s framework, it should generate another $50 billion in
income taxes.
Republicans want spending cuts that at least match tax increases. The
question is what tax increases will they get matched—$100 billion in
additional income taxes or that sum plus the additional $125 billion
obtained by letting the payroll tax holiday lapse.
Given how stubbornly President Obama defends the rapid growth in
entitlements and his desire to extend long-term unemployment benefits,
the likely target for Republicans is $100 billion in cuts from permanent
reductions in entitlements and some trimming in other domestic areas
and defense.
 |
| hg.scimth.net |
The president also wants some jobs creating temporary infrastructure
spending in the range of $50 billion but that will take at least years
to actually be effected.
Hence, overall taxes will rise about $225 billion and spending will be cut by about $75 billion, subtracting at least $300 billion from GDP in 2013—or nearly 2 percent, and owing to the ripple effects through the economy, about $450 billion from GDP in 2014.
Hence, overall taxes will rise about $225 billion and spending will be cut by about $75 billion, subtracting at least $300 billion from GDP in 2013—or nearly 2 percent, and owing to the ripple effects through the economy, about $450 billion from GDP in 2014.
The economy was growing at two percent until nervousness about the fiscal cliff recently dampened business spending and hiring.
Though some economists were optimistic that the housing recovery and
stronger auto sales could spell better times, with such a new large drag
on the economy, GDP growth in 2013 and 2014 will likely be below 2
percent for the next several quarters.
At that pace, businesses can easily handle most new demand by
increasing productivity, and even trim payrolls to further boost
profits. Hence, growth below 2 percent for several quarters could easily
instigate a negative feedback cycle—layoffs cut household income and
consumer spending, and in turn, the latter begets more layoffs.
What is going on in Washington these final weeks before the New Year
is the kind of fiscal fundamentalism that is making Greece, Italy and
Spain economic train wrecks.
With unemployment so high, real wages falling and so many folks
working part time for lack of full time work, the unemployment rate
could easily surge into the teens, and no amount of stimulus spending
could bring it back.
Clearly, Messrs. Obama and Boehner know a lot about getting elected
but on economics they are spread thin. Like the sorcerer’s apprentice,
they are courting disaster.
No hay comentarios:
Publicar un comentario