WASHINGTON — A last-ditch tax deal in the Senate might let the U.S. economy escape the worst of the so-called fiscal cliff and avoid going back into recession. But even if the House goes along, the tax increases likely coming in 2013 will dent economic growth anyway.
In the early hours of the new year, the Senate voted to end a long stalemate and raise taxes on upper-income households, extend long-term unemployment benefits and postpone decisions over government spending cuts, officials said. But any deal needs approval from the House.
About $536 billion in 2013 tax increases were scheduled to take effect Jan. 1, along with $109 billion in cuts from military and domestic-spending programs, if Democrats and Republicans could not reach agreement.
Mark Vitner, senior economist at Wells Fargo, said he expects budget policy, including the higher taxes in the Senate plan, to shave 0.8 percentage points off economic growth in 2013. The economy doesn't have much growth to give. Vitner predicts it will grow just 1.5 percent in 2013, down from 2.2 percent in 2012.
The biggest hit to the economy is expected to come from the end of a two-year Social Security tax cut. The so-called payroll tax is scheduled to bounce back up to 6.2 percent from 4.2 percent in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year.
"Even with this deal, fiscal policy will still be a net drag on economic growth," Vitner said. "The expiration of the payroll tax holiday will reduce after-tax income for all workers and hit lower to middle income families the hardest."
Mark Zandi, chief economist at Moody's Analytics, calculates that the higher payroll tax will reduce economic growth by 0.6 percentage points in 2013. The other possible tax increases — including higher taxes on household incomes above $450,000 a year — will slice just 0.15 percentage points off annual growth, Zandi says.
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Comments » 1
KlausStoertebeker writes:
If January 1, 2013 without agreement expires, then grace us God. America would then collapse of the so-called fiscal cliff and pull the global economy into the abyss.
It is true: the consequences of a delayed agreement would be unpleasant; the great crash would remain but for the time being. Because the savings automatic of America would meet the first months still not with full force economy. The effects would begin to work only gradually - then but all the stronger.
Roughly can be divided the measures of the austerity package in three categories:
• Measures which come immediately into force and have effect immediately: Certain aid for the unemployed for example would fall away suddenly on new year's day. Scope of savings in the first year: $26 billion. Two million unemployed would have to feel these cuts immediately. The consequences for the economy would however keep in bounds.
• Measures, which take effect immediately, but show only time-shifted effects: The income tax as would rise immediately from January 1, 2013 to 2 %. Scope of savings in the first year: $95 billion. Expected to the year around 1500 dollars of less in your Pocket would taxpayers with income of 40,000 to 65,000 dollars in the average. The $125 would be per month. Most would be something less money Americans earn than before - what to negative could affect their buying behavior. That would be disastrous for the U.S. economy: two thirds of the gross domestic product (GDP) by consumer generated. Until the increased income tax actually affects the purchase, would take some weeks. Especially since the increase in the payroll tax could be undone, if Democrats and Republicans have agreed.
• Measures, which later have effects only in the course of the year. These include higher taxes on capital gains and real estate and the expiration of tax credits for middle income. These measures access only if the Americans to submit their tax return for the previous year 2014. Defense and Home Affairs would begin to take effect until weeks after January 1, 2013 planned spending cuts amounting to about $85 billion. All of these cuts would impact on the economy in the medium term. Gradually would restrain themselves to companies with investment and fewer new employees.
Thats all if Republican can not find a compromise by themselves.
The President is here in a bad position.
Unfortunately the GOP leader is not a leader anymore. More a puppet on the string.
Happy New Year!
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