Copyright: | (c) 2010 Federal Information & News Dispatch, Inc. |
Source: | Federal Information & News Dispatch, Inc. |
Wordcount: | 3628 |
THE
FOR IMMEDIATE RELEASE
Interested Parties Memo on the Impact of the Tax Agreement on Economic Expansion and Job Growth
Earlier this week
The framework will avert what could have been a major shock to the U.S. economy had the tax cuts for the middle class been allowed to expire. Without an agreement, a typical middle class family would have faced a tax increase of
The framework agreement will avoid this hit to the American economy. Yet even more significantly, because of the measures the President fought to include, the framework will make a significant positive contribution to economic expansion and job growth.
That is why yesterday we saw a wide range of independent analysts significantly improve their forecasts for the American economy over the next two years. In summary, these independent analysts found:
* The President’s priority measures in the framework agreement will substantially increase economic growth next year – with forecasters estimates ranging from a 0.5% to 1.25% increase in GDP growth in 2011.
* The President’s priority measures will help create jobs – with outside forecasters projecting they will add more than 1.5 million jobs.
Selected analyses of the economic impact of the framework agreement:
*
*
*
*
*
ECONOMIC REACTION/COMMENTARY ON FRAMEWORK TAX AGREEMENT
“[The proposed package] will ensure the economic recovery evolves into a self-sustaining economic expansion. Prior to this, I was less sure of that.” [
“The proposed temporary tax cuts and spending increases will provide a substantial boost to growth in 2011. Instead of another year expanding at no more than the U.S. economy’s potential growth rate — with job gains of 1.2 million and unemployment hovering near 10% — real GDP growth will accelerate to 4%, job gains will pick up to 2.8 million, and the unemployment rate will decline to around 8.5% by year’s end. In all likelihood, the recovery would have made it through next year without backtracking into recession, but this deal improves those odds significantly.” [
“Net, the result of this proposal on our U.S. outlook is that we are now expecting slightly higher GDP growth over the next year, led by gains in consumer spending and business investment. Both the unemployment benefits extension and tax cuts should provide a much-needed boost to personal incomes and real wages. Most importantly, the reduction in uncertainty should allow both investors and consumers to plan for the year ahead. These actions, once implemented, may provide firms with the consumer demand and capital needed to start expanding payrolls.” [
‘[This deal], once passed, will support greater income and spending on the part of consumers and provide investors with a much clearer picture of short-term fiscal policy. The continued reduced tax rate on both firms and consumers should provide a stronger incentive to hire through increased demand.” [
“Remember, what is critical for the economic outlook is whether the two parties can work together and our sense is that the President has too much invested in this deal to let it be scrapped. And, when the deal does get signed into law, it will force us to boost our GDP estimates for 2011. Our current forecast assumes that unemployment benefits do not get extended and that the ‘Making Work Pay’ credit ends. So, we are talking about a
“The ‘framework’ that
“From a psychological standpoint, this probably will continue to boost the markets in the sense that this most likely will lead to an expansion in economic activity. People are going to be feeling a little bit better, and that means they’ll be maybe even spending a little bit more.” [
“The proposed payroll tax holiday is potentially a meaningful positive development for the US economy next year… According to our calculations, the
Macroeconomic Advisers
“[T]here are three major components that we had not assumed, and that would, in fact, together significantly impact the economic outlook over the next few years… Based upon what is currently known of these three key proposals, our preliminary analysis suggests that GDP growth in 2011 would be boosted by roughly 1/4 to 1/8 percentage point. This is on top of the 3.7% growth of GDP anticipated for 2011 in our recently published forecast.” [Macroeconomic Advisers’ Macro Musing, “A December to Remember Compromise Boosts Growth,” 12/7/10]
“Against the backdrop of positive momentum in recent US economic data, this policy shift has convinced us to raise our 2011 growth forecast, from 3.0% (4Q/4Q) to 3.5%. This upward revision is focused in 1H GDP growth, which now is expected to average 3.75% saar, versus 2.5% before.” [J.P. Morgan Daily Economic Briefing, 12/7/10]
“The package should provide a noticeable boost to GDP in 2011.” [
“I am generally pleased with the compromise over taxes the President and Republicans struck yesterday… As the policy was described yesterday, this payroll tax cut goes entirely to the worker. This increases work incentives, but the main motivation is probably to increase take-home pay, consumer spending, and aggregate demand…. I should note that, as part of the deal, the President also got his proposal to allow businesses to expense investment spending. As I have said previously, this is a good idea, but the impact is likely to be modest.” [“The Tax Deal,” 12/07/10] [LINK http://gregmankiw.blogspot.com/2010/12/tax-deal.html]
Decision Economics
“This is a big deal for the stock market.” [Decision Economics chief global economist Allen Sinai, quoted in
Other Economic Commentators
“The deal as announced would save or create 2.2 million jobs [through 2012], excluding jobs saved by extending the broad based Bush tax cuts, on which everyone agreed.” [‘The Jobs Impact of the Recently Announced Tax Framework”, 12/07/10] [LINK http://www.politico.com/static/PPM191taxjobs.html]
“Who got what out of the deal is clear. The Republicans got tax cuts for the best-off two percent and lower estate taxes for the very wealthiest families, neither of which will do much if anything to create jobs.
“These provisions would protect low- and middle-income workers and their families and, by boosting their incomes, also preserve or create substantial numbers of jobs…. In [securing the payroll tax reduction and extensions of unemployment benefits, the Earned Income Tax Credit, American Opportunity Tax Credit], the
“It’s a bigger deal than anyone expected… Both sides gave more expected and both sides got more than expected.” [
“Enacting this bipartisan framework forged by the President and
“We are pleased that congressional leadership and the President have made considerable progress toward a comprehensive bipartisan agreement. It reflects a compromise by all sides to extend tax relief and help provide certainty for American workers and businesses. This tax relief – including the extension of the dividends and capital gains rate – will provide a needed boost to job creation and investment. We applaud the inclusion of the R&D credit and other important business tax provisions that expired at the end of 2009. These provisions include long-standing features of the tax code that businesses rely on when they undertake hiring and investment decisions. Restoration of these provisions lifts an uncertainty for businesses that will improve their ability to employ more workers and grow the economy. Additionally, an employee payroll tax reduction and an increased incentive to undertake investment in machinery and equipment in 2011 should help to assist in the recovery.” [Business Roundtable http://businessroundtable.org/news-center/statement-on-bipartisan-tax-agreement1/, 12/07/2010]
“The bipartisan tax framework will help small businesses as they work to strengthen our economy during these challenging times….Bottom line, the tax framework announced yesterday is encouraging, and NFIB strongly urges members of
“Oh, it’s clear that
“Understanding the tax cut debate just requires seeing that this is another of the Democrats’ big agenda items — only this time, Republicans are playing for the substance, not the issue. And with both sides having substantive goals that they really care about, and neither having the votes to get there on their own, a deal makes lots of sense. Indeed, seen from this perspective, the eventual deal isn’t bad at all for the Democrats; they’ll be getting the middle class cuts plus whatever other stimulus and safety net they can bargain for, while the
“So is this a good deal” It’s a lot better than I would’ve told you the
“Let’s think about what this means from both a short-term stimulus perspective and a long-term deficit perspective. In the near future, this means significant help for American families and businesses that seemed out of reach just a few days ago. Unemployment benefits are considered the most effective form of stimulus. The payroll tax holiday will double the relief from the Making Work Pay tax credit, giving average worker thousands — yes, thousands — of dollars in additional after-tax income. The extensions to the refundable portions of the Child Tax Credit and EITC will also target low income families hit hardest in the downturn. In short, a
“What actually seems to be happening: Democrats and Republicans agree to extend all the tax cuts and also agree to an extension of unemployment benefits, a cut in the payroll tax and, according to my colleagues, ‘continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.’ The amount of money pumped into the ailing economy: about
The Economist
“On Monday
“Is extending tax cuts for the richest Americans (and blowing another hole in the deficit in the process) a steep price to pay for all of this” Absolutely. But that’s politics: Obama took the best deal he could possibly get…There’s also a longer term calculation at work. Note that the deal also includes a reduction in the
“
“That said, the Obama tax cuts may have a better chance of stimulating the economy than Bush’s did… Democrats have tried to cut taxes in the most stimulative way possible–that is, in a way that benefits the lower and middle classes. Hence the provisions in Monday’s compromise to bump the child tax credit and earned income tax credit, plus a reduction of payroll taxes for employees from 6.2 percent to 4.2 percent. The new plan will also extend unemployment insurance. An analysis by
The
Analysis: Obama Compromise A Bid For Independents
More Articles