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Marty Feldstein: America Cannot Afford to Hike Taxes at the End of This Year

He's right. The tax increases programmed-in at the end of 2012 are too large and too sudden to be at all prudent. The lame-duck session needs to do something.

Marty Feldstein:

Obama tax hikes threaten US recovery: The recent payroll gains and the declining unemployment rate in the United States have raised hopes that the economy will now start growing faster than the tepid 1.7 per cent rate last year. Optimists are expecting growth rates as high as three per cent for this year and next…. The recession that began in December 2007 was deep and painful…. House prices have continued to fall and housing construction remains dormant because of Barack Obama’s government’s failure to reduce the large number of homeowners whose mortgage debt exceeds the value of their homes….

Looking to the future, there are strong headwinds…. Higher petrol prices…. The weaknesses in many European economies…. But the most important cloud on the horizon is the large tax increase that will occur next year… bringing federal revenue as a share of GDP from 15.8 per cent this year to 18.7 per cent next year….

A sustained tax increase of that magnitude would push the US into a new and deep recession next year. So, it is important to recognise that legislation is required to prevent such a tax rise…. The risk of dramatic tax increases and an economic downturn next year affects the behaviour of businesses and households today…. America needs to reform its tax rules and entitlement programmes. But we can do that in a way that strengthens confidence and raises the rate of economic growth…

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