A new CBO report released yesterday finds that Taxmageddon’s economic impact for 2013 would be disastrous for the economy.
The report projects that gross domestic product (GDP) would fall by 0.5 percent for 2013, a recession by economist standards. The loss in growth would then result in millions of lost jobs by raising unemployment from 7.9 for the current quarter to 9.1 for the fourth quarter of 2013.
In contrast, the CBO expects growth to reach 2.25 percent (not including an additional .75 percent in growth from extending payroll tax cut and long-term unemployment benefits) by the end of 2013 if Taxmageddon is diverted. Although the scenario gives an optimistic outlook for 2013, the CBO’s projection becomes grim when looking at the long-term effects of not raising taxes. The CBO estimates that the public’s share of federal debt would increase at a faster pace than GDP and would “not be sustained indefinitely.”
Assuming that keeping taxes at their current rates is not revenue neutral – which may not be conclusive – it would still be better economic policy to reduce the deficit through spending cuts rather than tax hikes. This way millions of small employers and families are not punished and are able to fully recover from the recession. In a survey conducted by the National Association of Business Economics, it was found that of the 236 economists surveyed, the top deficit reduction plan chosen was one that favored reducing the deficit through spending cuts rather than taxes.
Most experts are aware of the folly in raising taxes on families and small-employers, especially during a recovery. Thus, other alternatives need to be explored that can both reduce the deficit and does not harm taxpayers, e.g., spending cuts and laws that encourage economic growth.