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NYT: A Gigantic Sigh Of Relief After ‘Cliff’ Deal

From a relieved New York Times:

A Gigantic Sigh of Relief as Tax Uncertainty Ends

By CATHERINE RAMPELL | January 2, 2013

Even though Congress’s last-minute deal means higher taxes for almost all Americans, businesses and consumers are relieved that some of the uncertainty about what they will owe the government this year is gone.

What uncertainty? What is more certain than more government spending and higher taxes?

“Once something gets settled, even if it’s not the most popular settlement option, it still gives you a sense of what the rules are and what you need to do to readjust,” said Sam Ramey, the owner of Sultan Mediterranean Cafe in North Andover, Mass., who says he hopes the deal will bolster the spirits of his customers.

“It’s not that you say ‘Today I’m not buying a sandwich because of all the uncertainty,’ but if you don’t feel that ease of mind that lets you go out and buy a sandwich, you don’t go out and buy a sandwich,” he said.

And never mind that that Obama-Care is going to kill small restaurants like his. People will now think it’s safe to buy sandwiches.

Congress’s compromise on taxes eliminates some uncertainty. But there’s no getting around the outcome that it will also reduce how much consumers have available to spend on dining out and other discretionary expenses.

So much for the gigantic relief. But we’re confused. We thought higher taxes boost the economy? Isn’t that what The Times has been telling us for years?

Altogether, the end of the payroll tax holiday, the income tax increase on the wealthiest Americans and other provisions will probably shave 0.7 to 1.5 percentage points off economic growth in 2013, estimate many economists. They are forecasting growth in output this year of just over 2 percent, almost identical to that of 2012.

And, given the rate of inflation, that is no growth at all. In fact, in view of the real inflation rate, it is negative growth.

The housing rebound, the natural gas boom, looser credit for small businesses, pent-up demand for new cars and other encouraging trends will be tempered by the fiscal tightening, though not nearly as much as if taxes had risen as they were scheduled to do without a deal.

“We’ve definitely averted the worst-case recession scenario,” said Jay Feldman, an economist at Credit Suisse. “We’re still looking at some fiscal drag, but it’s an amount the economy can absorb.” …

The tax deal is also expected to result in hiring growth at last year’s pace, meaning the creation of 150,000 to 160,000 payroll jobs a month, according to Michael Gapen, senior United States economist and asset allocation strategist at Barclays.

And never mind that we are told those numbers are not nearly high enough to lower the unemployment rate.

Without the tax increases, employers would probably be adding more than 200,000 jobs a month.

Altogether, that means the economy will “create 600,000 fewer jobs in 2013 — leaving the unemployment rate 0.4 percentage point higher — than it would have if the 2012 tax policies had been kept in place,” said Mark Zandi, chief economist at Moody’s Analytics.

Once again, we have never heard this from the New York Times before.

Congress’s tax deal will be felt most keenly in the beginning of the year, since workers around the country immediately have to start paying an additional 2 percent in taxes on their wages and salaries as a result of the end of the temporary payroll tax holiday.

“That may surprise a lot of people as Christmas shopping bills come due and they find they have less in their paychecks,” said Mr. Feldman…

This 2 percent is chicken feed compared to all of the other hidden taxes that are coming down the pike.

But remember, we are supposed to be feeling "relief."

This article was posted by Steve Gilbert on Friday, January 4th, 2013. Comments are currently closed.

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