Heading Toward the Cliff

As the fiscal cliff approaches, Glenn Hubbard has a suggestion:

“The first step is to raise average (not marginal) tax rates on upper-income taxpayers,” he wrote. “Revenues should come first from these individuals.”

 

Mr Hubbard said that could be achieved by eliminating tax loopholes and capping popular deductions – such as those for mortgage interest, charitable giving and employer-provided health plans – rather than allowing Bush-era tax rates for the rich to expire this year, as Democrats are demanding.

James Hamilton, as usual, has a thoughtful post, including the following from a recent Bank of America/Merrill Lynch estimate of the consequences (a combined impact of 4.6% of GDP):
And if that’s not enough, the CBO has presented a sobering forecast:
if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.

Author: Brandon Dupont

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