Subject: txt tax - oldmny -
Deficits are a real problem but the recovery is still too fragile to choke off growth with higher taxes, says Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan and a professor at Harvard University...
A tax increase next year could easily derail the current fragile expansion. The economic upturn since last summer has been nurtured by Federal Reserve credit like the mortgage purchase program and by the fiscal incentives such as the tax credits for car buyers and first-time home buyers that are now coming to an end, says Feldstein:
- Eighty percent of the latest quarterly gross domestic product (GDP) increase consisted of a rise in consumer spending that was the result of an unrepeatable sharp drop in the saving rate.
- Without that decline in the saving rate, the first-quarter annual GDP growth rate would have been less than 1 percent.
- A 2011 tax increase that reduces economic incentives and household spending would raise the risk of a new economic downturn.
Raising their tax rates would be a substantial blow to overall spending and therefore to GDP growth. Small business investment and hiring would also be adversely affected because half of all profits, including most of small business income, is taxed at personal rates rather than at the corporate rate, says Feldstein.
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