Tax Hike for Wealthy Not Likely to Hurt Growth, Says Nonpartisan CBO
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America’s budget watchdog, the nonpartisan Congressional Budget Office, has said in a new report that letting the Bush-era upper-income tax cuts expire automatically would barely affect the economy.
Studying the effects of a potential fiscal cliff, the CBO said allowing income tax rates to rise for wealthy Americans while maintaining rates for the less affluent would not hurt US economic growth much in 2013.
America’s budget watchdog, the nonpartisan Congressional Budget Office, has said in a new report that letting the Bush-era upper-income tax cuts expire automatically would barely affect the economy.
Studying the effects of a potential fiscal cliff, the CBO said allowing income tax rates to rise for wealthy Americans while maintaining rates for the less affluent would not hurt US economic growth much in 2013.
In its analysis, the CBO found that extending all of the existing tax provisions would boost US gross domestic product growth by less than 1.5 percentage points while adding 1.8 million jobs to the economy by the end of 2013. However, that would add $330 billion to the deficit, the CBO estimates.
Alternatively, if the tax rates were extended only for individuals earning less than $200,000 and couples earnings less than $250,000, growth would rise by 1.25 percent, a difference which the CBO estimates to be relatively negligible. Under such a scenario, it is projected that employment will increase by 1.6 million and the deficit would be $288 billion higher.
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“Because the tax cuts have been in place for so long, CBO expects that households would view an extension of current tax rates as a continuation of established tax policy and would therefore alter their spending very little,” the report said.
[quote] Examining the fiscal cliff as a whole, the CBO said avoiding automatic spending cuts that are part of the fiscal cliff would have the biggest economic effect per dollar. [/quote]
For example, eliminating the defence spending cuts would increase the nation’s gross domestic product by about $1.20 for each dollar that would be added to the budget deficit as a result, the CBO said.
Extending the tax breaks universally would increase GDP by about 50 cents for every dollar of additional deficit in 2013, it said.
The CBO also warned that the US economy could slip back into recession if the fiscal cliff is not avoided in time and could cause unemployment to rise to 9.1 percent by the end of 2013.
Negotiations between the White House and Congress are expected to begin soon to reach a budget compromise to avoid the fiscal cliff.
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