WASHINGTON
(Reuters) - Allowing income tax rates to rise for wealthy Americans,
and maintaining rates for the less affluent, would not hurt U.S.
economic growth much in 2013, the Congressional Budget Office said on Thursday, stepping into a dispute between Republicans and Democrats over how to resolve the so-called "fiscal cliff."
The report by the authoritative non-partisan arm of Congress is expected to fuel President Barack Obama's demand for higher taxes on the rich, part of his proposal to avoid the full impact of the expiring tax cuts and across-the-board spending reductions set to begin in early 2013 unless Congress acts.
Republicans argue that any tax increases would be devastating to the economy, particularly to small businesses, and to U.S. employment rates.
They have held firm to their position that none of the cuts, which originated during the administration of President George W. Bush, should be allowed to expire.
The CBO
said the tax hikes for the wealthy would reduce job growth by around
200,000 jobs, much less than the 700,000 in job losses claimed by
Republican Speaker of the House John A. Boehner.
Obama has also stuck to his position, with the White House
reiterating on Thursday that the president sees his election victory on
Tuesday as an endorsement by voters of his view on higher taxes for the
affluent.
"One of the
messages that was sent by the American people throughout this campaign
is ... (they) clearly chose the president's view of making sure that the
wealthiest Americans are asked to do a little bit more in the context
of reducing our deficit in a balanced way," senior White House adviser
David Plouffe said.
UNCERTAINTY SCARING MARKETS
The disagreement
over the tax cuts is a major roadblock to any agreement in Congress, as
it is coupled with the spending issues also on the table.
The lack of progress in ending the standoff is spooking
global markets, which fell again Thursday in part because of political
uncertainty in Washington.The concern was underscored by the credit rating agency, Standard & Poor's, which said on Thursday it sees an increasing chance that the U.S. economy will go over the cliff next year. But it also said it expects policymakers will probably compromise in time to avoid that outcome.
Analysts at the agency see about a 15 percent chance that political brinkmanship will push the world's largest economy over the fiscal cliff.
With only five days remaining before the U.S. Congress
begins its post-election session, top political leaders in Washington
provided little new assurance Thursday that they can act in time.In an interview with ABC Television's Diane Sawyer, Boehner repeated what he has been saying for two years: "Raising tax rates is unacceptable. ... Frankly, it couldn't even pass the House. I'm not sure it could pass the Senate," he said, according to a transcript provided by the network.
The Democratic White House did not respond publicly to an initiative launched on Wednesday by Boehner to get talks going to avoid the cliff. The president is scheduled to make a statement on the economy Friday.
In the absence of concrete developments, the CBO report became the focus of argument Thursday. Reports by the CBO are designed to assist Congress in making difficult fiscal decisions, but they are also used by partisans to bolster their own arguments.
A statement from
the Republican-controlled House Ways and Means Committee said the CBO
report "confirms that raising taxes on all taxpayers will result in
fewer ‘help wanted' signs hanging in the windows of businesses across
the country. Job creators agree, and have made it clear, that raising
taxes will result in a weaker economy and fewer jobs for the millions of
Americans struggling to find work."
Democratic Rep.
Chris Van Hollen, ranking member of the House Budget Committee, said the
report "underscores the need to prevent the so-called fiscal cliff from
harming American families and businesses, and to instead enact a
balanced, long-term deficit reduction plan."
The term "balanced" plan is the Democratic code for tax increases.
The tax cuts were
enacted during the Bush administration, but were made temporary, in part
to reduce the appearance of exploding the already soaring U.S. deficit
over the long term.
They were extended
in 2010 for two years under an agreement between Republicans and Obama,
after Republicans swept the mid-term elections that year and took
control of the House.
That extension is
running out, just as the trigger date arrives for automatic spending
cuts Congress approved in 2011 as part of a deal to avoid a default on
U.S. government debt.
VARIOUS SCENARIOS
The report from CBO
laid out the economic effects of a number of options that lawmakers
will consider as they deal with the fiscal cliff events.
The CBO said
extending all of the tax cuts would boost U.S. gross domestic product
growth next year by a little less than 1.5 percentage points.
If the tax rates
were extended only for individuals earning less than $200,000 and
couples earnings less than $250,000, CBO said, growth would rise by 1.25
percent.
Wall Street estimates show third-quarter GDP growth was 2.8 percent. Unemployment is currently at 7.9 percent.
Eliminating the
automatic spending cuts to military and domestic programs would add back
0.75 percentage points of growth, as would extending an expiring
payroll tax cut and long- term unemployment benefits that are expected
to end next year, the CBO said.
But the office also
warned of the consequences of taking such actions without reducing
deficits that have run at $1 trillion in each of the past four years.
"CBO expects that
even if all of the fiscal tightening was eliminated, the economy would
remain below its potential and the unemployment rate would remain higher
than usual for some time," the report said.
(Additional
reporting by Richard Cowan, Mark Felsenthal and Jeff Mason; Editing by
Stacey Joyce, Eric Walsh and Fred Barbash)