The Fiscal Cliff and the Economy
Some people are starting to notice that the prospect of huge tax increases approaching at the start of 2013 is harming the economy.
The New York Times has a serviceable account on the business page under the headline "Fear of Year-End Fiscal Stalemate May Be Having Effect Now." It begins, "With the economy having slowed in recent weeks, business leaders and policy makers are growing concerned that the tax increases and government spending cuts set to take effect at year's end have already begun to cause companies to hold back on hiring and investments."
Warren Buffett, in an interview this morning on CNBC, said the American economy overall had flatlined in the past two months, though there is starting to be some recovery in housing. Mr. Buffett went on, "People have a feeling that Congress is inept." He said, "I think that has got to be a factor" affecting confidence. He said, "You see your government not functioning, it's not the biggest spur to activity that you can imagine...I think it's hard for the Fed to offset the Congress."
It's interesting how Mr. Buffett makes it about "Congress" rather than about President Obama. And it's interesting how the Times headline makes it about the "stalemate" — like Mr. Buffett's "not functioning" — rather than about the prospect of huge tax increases.
There was some of this talk about during the showdown over increasing the debt limit, but it later turned out that, contrary to the "uncertainty" talk, government statistics showed there had been relatively strong job creation at the height of the showdown.
The Wall Street Journal had a well-crafted table accompanying Monday's editorial, showing how in 2013, under President Obama's budget, the tax on dividends is scheduled to increase to 43.4 percent from 15%, while the capital gains tax, under Mr. Obama's budget, would climb to 30 percent from 15 percent. These aren't minor tax increases — they'd double or nearly triple tax rates on investment. It's no wonder that the anticipation of them would slow the economy. What is a wonder is that President Obama can be running on a platform of such vast tax increases and still be leading Mr. Romney on Intrade and in most polls.
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