Research Briefing

The State Of The Economy Is Uncertain As Businesses Brace For The Dems’ Tax Hike

“Treasury Secretary Timothy Geithner Plans To Make A Speech About Tax And Fiscal Policy At The Center For American Progress On Wednesday...” (“If The Cap Fits, “Geithner To Speak At Cap,” Politico’s “Politico 44: A Living Diary Of The Obama Presidency,” Blog, 7/30/10)

DEMS CREATED ERA OF UNCERTAINTY, DUE TO FEAR OF TAX HIKES

Fed Reserve Chairman Ben Bernanke Said The Economic Outlook Is “Unusually Uncertain.” “Saying the economic outlook was ‘unusually uncertain,’ Federal Reserve Chairman Ben S. Bernanke predicted that unemployment was likely to remain stubbornly high for several years, straining families and endangering the nation's economic stability and competitiveness.” (Don Lee and Walter Hamilton, “Bernanke Says Economic Outlook Is ‘Unusually Uncertain,’” Los Angeles Times, 7/22/10)

Companies Are Not Hiring Because They Are “Uncertain About The Strength Of The Recovery.” “Uncertain about the strength of the recovery, companies are sitting on record piles of cash, loath to use the money to hire new workers and expand operations. Caterpillar Inc., Dupont Co. and Microsoft Corp. are among companies reporting strong second-quarter earnings in the past two weeks yet they aren't ready to bulk up their work forces.” (Jeannine Aversa, “Recovery Loses Speed As Consumers Turn Cautious,” The Associated Press, 7/29/10)

Small Business Owners Reluctant To Make Decisions Due To Uncertainty In Tax Laws. “Small business owners who want to give their companies a mid-year financial checkup might find it hard to forecast what the rest of the year will bring. It's not just the economy that's unpredictable; there's also uncertainty about the tax laws… This might complicate the decisions that owners typically make at this time of the year, such as whether to buy equipment.” (Joyce M. Rosenberg, “Small Business Owners Face Uncertainty About Tax Laws,” The Associated Press, 7/19/10)

Moody’s Chief Economist Mark Zandi Says That The Administration’s And Congress’ Refusal To Extend Bush Tax Cuts Is Causing “A Great Deal Uncertainty.” “Yeah, I think that's a reasonable concern. It's baffling to me that we're not discussing this more. Those tax cuts expire for a everybody at the beginning of next year. That will be very counterproductive. My sense is at the end of the day what will happen is the tax cuts will be extended for longer and then they will be phased -- the tax increases will be phased in for the two upper income groups later in 2011, 2012, 2013 when the economy could more reasonably digest it, so but I do think it's very important for Congress and the administration to nail this down pretty quickly, because it is creating a great deal of uncertainty. It’s one of the reasons people are so nervous.” (CNBC’s “Fast Money” 7/6/10)

Businesses Need To Know If The “Debilitating Tax Increases Are Coming. “While Congress has five months to settle the issue and extend the tax cuts, the longer it waits the more damage will be done to the economy. Businesses need lead time to plan for potentially debilitating tax increases. Individuals will also have to make plans. Five months is little time to do that.” (Editorial, “Don't Let Obama's Tax Increases Go Into Effect,” Foster’s Daily Democrat, 7/27/10)

IF THE DEMS’ LATEST TAX HIKE IS IMPLEMENTED, THE ECONOMY WILL GET WORSE

Dems Will Impose A $3.8 Trillion Tax Hike On The American People If The Bush Tax Cuts Expire. (Committee On Ways and Means Republicans, “Democrat’s Ticking Tax Bomb, Part I,” Press Release, 7/19/10)

Fed Chairman Ben Bernanke Says Extending Tax Cuts Would Help The Economy. “Federal Reserve Chairman Ben S. Bernanke said extending the tax cuts passed during former President George W. Bush’s administration would help strengthen a U.S. economy still in need of stimulus. ‘In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,’ Bernanke said today in testimony before the House Financial Services Committee. ‘There are many ways to do that. This is one way.’” (Scott Lanman, “Bernanke Says Extending Bush Tax Cuts Would Maintain Stimulus To Economy,” Bloomberg, 7/22/10)

If Tax Cuts Expire, GDP Could Drop By As Much As 1.5 Percent. “The nascent US economic recovery would be halted in 2011 if Congress fails to extend the Bush tax cuts for the wealthiest Americans, analysts at Deutsche Bank said. The cuts were enacted in 2001 and 2003 under President George W. Bush and covered those earning more than $250,000, but they are set to expire at the end of this year. Deutsche said the drag on gross domestic product should they lapse could be as much as 1.5 percent, with the more likely impact at 1.1 percent.”  (Jeff Cox, “Letting Bush Tax Cuts Die Would Kill Recovery: Analysts,” CNBC, 7/29/10)

Chicago Tribune: Raising Taxes “Would Be A Terrible Mistake.” “Given the ever-deepening budget hole in which Washington finds itself, there is some appeal in trying to pull in more tax revenues. But at this stage, it would be a terrible mistake, not only for the health of the economy but for the nation's long-term fiscal health.” (Editorial, “Out Of Debt,” The Chicago Tribune, 8/1/10)

• And Congress Would Just “Spend Every Nickel – And Then Some” Of Any Taxes Raised. “Given the total collapse of spending restraint over the last decade, there is no reason to think a tax increase would do much to bridge the gap. More likely, Congress and the president would spend every extra nickel — and then spend some more.” (Editorial, “Out Of Debt,” The Chicago Tribune, 8/1/10)

EVEN DEMS, INCLUDING OBAMA’S TOP ECONOMIST, SAY TAX HIKES ARE BAD IDEA

Chair of the White House Council of Economic Advisers, Christina Romer Found That Tax Increases Cause Sharp Declines In Investment. “In addition, we find that the output effects of tax changes are much more closely tied to the actual changes in taxes than to news about future changes, and that investment falls sharply in response to exogenous tax increases.” (Christina Romer and David Romer, “The Macroeconomic Effects Of Tax Changes: Estimates Based On a new Measure Of Fiscal Shocks,” American Economic Review, June 2010)

• Romer: “We find that exogenous tax increases have a large, rapid, and highly statistically significant negative effect on output.” (Christina Romer and David Romer, “The Macroeconomic Effects Of Tax Changes: Estimates Based On a new Measure Of Fiscal Shocks,” University of California, Berkeley, April 2008)

Rep. Gerald Connolly (D-VA) Says All The Bush Tax Cuts Should Be Extended Because The Economy Cannot Take “Any Kind Of  Severe Hit.” “Well, I respectfully disagree with the rational. We’re at a very fragile point in the economic recovery right now, and I think we ought to leave well enough alone for now. I don't think this economy can take any kind of severe hit. When you, when you allow the tax cuts to expire on a relatively small but highly influential group in the economy, it can affect confidence in the consuming public, it can absolutely affect the economic performance. A stunning statistic, Jenna, is that the top 5 percent income earners generate 30 percent of consumer activity. We can't afford to be negatively affecting that right now.”  (Fox News’ “Happening Now,” 7/27/10)

Sen. Evan Bayh (D-IN) Thinks Expiration Of Bush Tax Cuts Will Hurt An Economic Recovery. “In a rare moment of bipartisanship, Sen. Evan Bayh (D-Ind.) on Monday said he agrees with House Minority Whip Eric Cantor's (R-Va.) statements that tax increases would hurt the economic recovery. ‘We don’t need to raise taxes now,’ Bayh told CNBC’s Squawk Box. ‘Eric is exactly right.’ Cantor said President Barack Obama should abandon his campaign pledge to only extend the Bush tax cuts for the middle class, and instead keep all of them beyond their Jan. 1, 2011, expiration date.”  (Jay Heflin, “Bayh: Tax Increases Will Hurt Recovery,” The Hill’s “On The Money” Blog, 7/12/10)