GDP Numbers are a Warning to DC Against Raising Taxes
Subscribe today for Free Enterprise Updates
- Latest business trends and best practices
- News about legislation and regulation impacting business
- Business how-to articles from industry experts
- Commentary and interviews with newsmakers in business and politics
Today’s GDP numbers showed that the economy is slowing. Growth dropped from 2% in the first quarter to 1.5% in the second. We’re in the middle of the second-worst recovery since World War II, according to the Wall Street Journal.
The Bureau of Economic Analysis, the keepers of the GDP statistic, also updated previous years’ numbers and found that the recession was worse and the recovery weaker than first thought. Tom Blumer at BizzyBlog lists the revisions [emphasis his]:
3Q09 — was 1.7%, now 1.4%, reduced 0.3 points
4Q09 — was 3.8%, now 4.0% increased 0.2 points
1Q10 — was 3.9%, now 2.3%, reduced 1.6 points
2Q10 — was 3.8%, now 2.2%, reduced 1.6 points
3Q10 — was 2.5%, now 2.6%, increased 0.1 points
4Q10 — was 2.4%, now 2.4%, no change
1Q11 — was 0.4%, now 0.1%, reduced 0.3 points
2Q11 — was 1.3%, now 2.5%, increased 1.2 points
3Q11 — was 1.8%, now 1.3%, reduced 0.5 points
4Q11 — was 3.0%, now 4.1%, increased 1.1 points
1Q12 — was 1.9%, now 2.0%, 2.0 increased 0.1 points
Chad Moutray, the National Association of Manufacturers’ chief economist, writes that these numbers “reflect continued weaknesses in the global and domestic economies.” Economists including Robert Brusca and Douglas Holtz-Eakin worry that the economy will get a whole lot weaker if Washington doesn’t get its act together and stop the rush toward the impending fiscal cliff—automatic tax increases and spending cuts scheduled for 2013.
Bruce Josten, Executive Vice President for Government Affairs at the U.S. Chamber, penned a warning to our leaders to make sure we don’t fall over the cliff:
If the 2001 and 2003 tax rates are allowed to expire at midnight on Dec. 31, we'll witness the largest single tax hike in U.S. history -- hitting American taxpayers with $400 billion in new taxes in the first year and $4.5 trillion over the next decade.
Marginal tax rates, as well as dividends and capital gains taxes, will rise. This will squarely hit taxpayers -- ranging from the investors who pour capital into job creation to retirees and workers planning for retirement.
The estate tax will come roaring back to 55 percent, and the exemption threshold will dip from $5 million estates to $1 million -- threatening the livelihood of many small businesses and family farms. In addition to the 2001 and 2003 tax rates, relief from the alternative minimum tax will lapse, along with many vital business tax provisions.
Unfortunately, earlier this week the Senate voted to raise taxes on small businesses, a bad idea according to Josten:
Many of these businesses could see their top tax rates rise from 35 percent to nearly 45 percent. And a heavier tax burden on our nation's job creators will have a chilling effect on hiring and expansion.
Don’t expect stronger growth if taxes increase.
Josten also doesn’t ignore the automatic spending cuts that will take effect:
The ill-designed, across-the-board discretionary spending cuts -- a result of the failed Deficit Supercommittee -- were never intended to take effect. If they do, they will disproportionately cut $500 billion in military spending. What's worse, they will fail to address the real drivers of runaway spending -- massive and growing entitlement programs.
In light of these economic numbers, there will be little hope of speedier growth unless Congress acts on upcoming tax hikes and spending cuts.