New Study Shows Tax Increases Harm U.S. Economy and Provide No Relief on Deficits and Debt

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American Council for Capital Formation

Jun 15, 2012, 10:30 ET

Reduced Economic Activity and Large Losses of Jobs with No Help to Deficits and Debt if Lawmakers Fail to Confront the Negative Economic Impacts of Tax Increases Scheduled in the Law

WASHINGTON, June 15, 2012 /PRNewswire-USNewswire/ -- A new study released today by the American Council for Capital Formation (ACCF) finds that failure to continue extensions on Bush-era and other tax cuts would result in significantly reduced economic activity, heavy jobs losses, and financial disarray that could propel the economy into another recessionary tailspin. Dr. Allen Sinai, Chief Global Economist and President of Decision Economics, Inc. conducted the study and examined the potential effects of various scenarios where the legislated tax increases on income, dividends, capital gains and social security take place.

If Congress and the Administration take no action on the tax dimension of the Fiscal Cliff, i.e., all Bush-era tax cuts expire as tax increases—income, capital gains, dividends, AMT—and social security taxes rise, the economic and financial impacts are severe:

Economy: Significant declines in real economic growth of 2.6, 3.3, and 0.5 percentage points over 2013 to 2015 compared with a Baseline—and up to $855 billion of lost output which could well take the economy into another recession.

Jobs Losses: Large declines in the numbers of persons working, over 1 million estimated for all of 2013 and in excess of 3 million for 2014. The unemployment rate would be 0.4 percentage points higher in 2013 and increase by a very large 1.5 percentage points compared with the Baseline in each of 2014 and 2015.

Lower Consumption Spending and Reduced Capital Formation: Consumption spending down about $1 trillion per year, on average, over 2013-17, beginning with a relatively small decline of $343 billion in 2013 but rising to $1.2 trillion in 2015 with a substantial hit to business capital spending, down $13.4 billion in 2013, $68.5 billion in 2014 and $95.2 billion in 2015.

Financial Markets Disarray: A stock market that very likely would sell off on the prospect, nearly 18% a year over 2013 to 2017, with corporate profits down and expected to be down. This would represent real losses in the retirement and pension accounts of ordinary Americans, and significant declines in household wealth and the state of the household balance sheet...