As the deadline to extend the Bush-era tax cuts looms, economists have agreed that the pending tax hikes would be devastating to the economy, and that permitting their expiration would have about twice the impact on economic growth as government spending cuts under the sequester.
Responding to a survey, the majority of economists said elevated marginal income tax rates would spur up to 40 percent of the economic slowdown if the United States were to “jump off” the fiscal cliff — which refers to the impact of the expiring tax cuts and automatic reductions in government spending set for 2013. Comparatively, the economists attributed about 20 percent of the slowdown to cuts in government spending.
“This assessment mostly reflects the amount of money the higher taxes would take out of the economy compared to the lower spending,” The Hill explains. “Returning marginal income tax rates to where they were in the Clinton administration would take a bit more than $200 billion out of the private sector, while the sequester would require a cut of about $100 billion in 2013 government spending.”
Recent reports by Moody’s Analytics chief economist Mark Zandi, Douglas Holtz-Ekin of the American Action Forum, and other economic experts at Goldman Sachs project a 2-to-1 ratio of taxes to spending reductions in the fiscal cliff. The Hill explains further:
These assessments estimate new government revenues of roughly $560 billion for fiscal 2013, and more than $700 billion in calendar year 2013, if all elements of the fiscal cliff were implemented. Aside from ending the Bush-era tax levels and the sequester, the fiscal cliff also includes the end of the Alternative Minimum Tax (AMT) patch, the payroll tax holiday, emergency unemployment insurance, the Medicare "doc fix" and other tax extenders, in addition to the implementation of new taxes under the 2010 Affordable Care Act (ACA).
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