Tuesday, 10 Jul 2012 04:12 PM
The U.S. is close to double-dipping back into recession, as the so-called fiscal cliff approaches at year end, says economist Arthur B. Laffer, an architect of Ronald Reagan's economic policies.
"We’re close — the single worst recovery of all time," Laffer tells CNBC's The Kudlow Report. "If the tax increases go through to 2013, I think we fall off the cliff, to be very honest with you."
Laffer sharply criticizes President Barack Obama’s plans to extend the Bush-era tax cuts for another year through 2013 but only for households earning less than $250,000 a year. Such a policy won't help the economy, but will hurt it instead, he says. The problem with hiking taxes on the wealthy is that it in turn, crimps jobs creation.
"They employ everyone else, invest capital and provide the economic recovery," Laffer says. "It's just terrible."
Supporters of letting the Bush tax cuts expire for the wealthy echelons of society say doing so will pump an estimated $850 billion into the government's coffers over the next decade and help narrow the country's gaping deficits.
“We are talking about raising real money for deficit reduction. That’s important for the economy, too,” says Vice President Joe Biden’s former chief economist Jared Bernstein, also on The Kudlow Report. “If you think back to the years when we had the higher tax rate, we had more balance. I think going from 36 to 39 or even 40 plus is absolutely fine in terms of balancing our revenue and growth needs. It’s that simple.”
Laffer disagrees.
“Let me say, No. 1, you’re not going to raise the revenues,” he says, citing as evidence that British Prime Minister David Cameron tried to raise top tax rates to 50 percent and it didn't work. “Two years later they have gone into a double-dip recession. It just doesn’t work. You don’t get the money."
“No. 2, Bill Clinton cut government spending as a share of GDP by more than the next four best presidents combined. If you got this president to do it, you might get a good economy. You have new taxes coming that are huge. You will cause a tragedy of incredible proportions in 2013 if you don’t get off this kick."
Other economists agree that if Obama is going to extend the Bush tax cuts, he should do so for everyone.
"By pushing an extension for one group of taxpayers and not the other, you reduce the possibility of it being passed," says Carl Riccadonna, senior U.S. economist with Deutsche Bank, CNNMoney reports.
"We don't need to raise taxes in the short term. When unemployment is down to 6 percent, we can talk about phasing out these tax cuts, even though that could be a while."
Individuals who make more than $200,000 and joint filers who bring in $250,000 annually would see their taxes rise under the Obama plan.
When asked if Congress would move to extend the tax cuts for everyone, Obama says he'll veto such a move: "Here's why. What I'm proposing is that we give a tax break — that we make sure that taxes don't go up — on 98 percent of Americans. Ninety-eight percent. But to extend tax breaks for that top 2 percent of wealthiest Americans would cost us $1 trillion over the next decade," Obama tells CBS affiliate WWLTV.
"Now at a time when we're trying to bring down our deficit, to give me a tax break or Warren Buffet a tax break that costs a trillion dollars and 80 percent of that would go to people who make a million dollars or more, that would mean that we'd have to cut something — so a trillion dollars would be cut out of student loan programs for kids going to college, for projects that take care of our veterans, projects that benefit our seniors."
House Speaker John Boehner has said congressional Republicans will push to extend the tax cuts for everyone.
"How will these small business tax hikes create jobs? Even Democratic congressional leaders and former President Clinton have turned their back on this proposal," Boehner says, ABC News reports, pointing out that several high-profile Democrats have broken with Obama and called for an extension of current rates for everyone but millionaires.
© 2012 Moneynews.
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