Letting Bush Tax Cuts Die Would Kill Recovery: Analysts

[alienlovechild 75]

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.

The impact would be worse, the analysts said, if Congress fails to fix the Alternative Minimum Tax, which was enacted in 1969 to make sure rich people pay taxes but was never indexed for inflation, and thus is now hitting middle-income workers.

"In a worst-case scenario, allowing the Bush tax cuts to expire and failing to fix the AMT could result in (1.5 percent) of fiscal drag in 2011 on top of the 1 percent fiscal drag we expect to occur as the Obama fiscal stimulus package unwinds," Deutsche said in a note to clients. "If the recovery remains soft/tentative through early next year, this additional drag could be enough to push the economy to a stalling point."

The opinion runs counter to that of Treasury Secretary Timothy Geithner, who said earlier this week that allowing the cuts to expire would not cause the economy to re-enter recession. The administration has proposed letting most of the tax cuts stand, but eliminating the ones for the top-tier earners.

Deutsche compared the situation to Japan in the 1990s, when the government let tax cuts expire and cut stimulus, leading to another leg down in the recession and ensuring the nation's "lost decade" of no economic growth.

While the US is headed toward unmanageable debt levels, now is not the time to start tightening the money supply, the analysts said.

"As soon as the economic recovery does look reasonably well entrenched, indeed, preferably even sooner, plans will need to be made to begin to put the US fiscal position on a more sustainable course," Deutsche said.

"As we have noted, this is not going to be an easy process politically, and it may well take a significant negative event in financial markets to steer the US political system to do what needs to be done."

http://www.cnbc.com/id/38467149

[Brother Hesekiel 2,236]

I've always maintained: give as much money to the super rich as possible. This way you keep them happy and they treat us working slaves not too badly.

I mean seriously, does anybody care about the remaining 98% of the US population?

[^_^ 5,021]

I mean seriously, does anybody care about the remaining 98% of the US population?

Nobody who matters.

[Usui Takumi 1,562]

Nobody who matters.

I would laugh at this if it wasn't so horribly true.

[mawilson 2,133]

I'll never understand why people expect a top-down distribution of economic gains.

Even if business profits are soaring to record levels, why should the companies pay

their workers more for doing the same thing?

The world isn't fair, and it's not the government's job to make it fair.

[Usui Takumi 1,562]

I'll never understand why people expect a top-down distribution of economic gains.

Even if business profits are soaring to record levels, why should the companies pay

their workers more for doing the same thing?

The world isn't fair, and it's not the government's job to make it fair.

Well in the end, its a self defeating business model isn't it?

Edited July 29, 2010 by Sousuke

[^_^ 5,021]

Well in the end, its a self defeating business model isn't it?

I (pretend I am the man and don't just work for him) keep making more money but the people who work for me don't ... is a self defeating business model? How?

[Usui Takumi 1,562]

I (pretend I am the man and don't just work for him) keep making more money but the people who work for me don't ... is a self defeating business model? How?

If worker wages don't keep pace with inflation their buying power diminishes. Because the US market is heavily dependent on consumer spending, the less top down payment that occurs further weakens the economy as a whole.

Edited July 29, 2010 by Sousuke

[^_^ 5,021]

If worker wages don't keep pace with inflation their buying power diminishes. Because the US market is heavily dependent on consumer spending, the less top down payment that occurs further weakens the economy as a whole.

if my profits outpace inflation, then is it ok for me to limit my workers wage increases to inflation?

[Usui Takumi 1,562]

if my profits outpace inflation, then is it ok for me to limit my workers wage increases to inflation?

Technically their your profits, so you can do whatever you like with them.

[^_^ 5,021]

Technically their your profits, so you can do whatever you like with them.

i know that. but will the lefties hate on me if i do?

Edited July 30, 2010 by Legacy member

[Usui Takumi 1,562]

i know that. but will the lefties hate on me if i do?

I don't know. I suppose it depends on the circumstances.

[mawilson 2,133]

Well in the end, its a self defeating business model isn't it?

You're assuming that the workers making the product are the same ones who end up buying

and consuming the product.

We know that isn't true. GM now sells more cars in China than it does in the US.

The US consumer isn't the be all and end all of consumption.

[Usui Takumi 1,562]

I guess what I'm trying to say is that businesses should also look to cultivating the consumer base instead of looking at short term profits.

[Usui Takumi 1,562]

You're assuming that the workers making the product are the same ones who end up buying

and consuming the product.

We know that isn't true. GM now sells more cars in China than it does in the US.

The US consumer isn't the be all and end all of consumption.

Maybe, but GM still sells cars in the US no? I imagine GM wouldn't want to see their US sales diminish.