Congress Budget Pact Would Crimp Not Crush U.S. Growth
By Rich Miller & Shobhana Chandra – Jan 2, 2013 1:21 AM ET
The U.S. economic expansion probably will be crimped without being halted by the budget deal that won approval by the House of Representatives last night after being forged by the Senate and White House.
The agreement permanently reinstates the income tax cuts for most workers that ended Dec. 31, continues expanded unemployment benefits and delays automatic spending cuts for two months. It would let a two percentage point payroll tax cut expire.
The elimination of the payroll tax cut, coupled with higher income taxes on the wealthy, will help clip growth in the first quarter to 1 percent, from 3.1 percent in 2012’s third quarter, the latest data available, according to economists at JPMorgan Chase & Co. (JPM) and Bank of America Corp. The expansion will strengthen later in the year as the housing market
“It’s going to definitely present a headwind for the economy,” Michael Feroli, chief U.S. economist for JPMorgan Chase in New York, said. “We’re looking for a downdraft in growth in the first half of the year, with the economy coming back in the second.”
The package isn’t the grand bargain on deficit reduction that lawmakers wanted when they created the tax-and-spending deadlines over the past three years. Instead, it would avert most of the immediate pain and postpone Congress’ fiscal feud for two months — until a February fight over raising the $16.4 trillion debt limit.
https://www.bloomberg.com/news/2013-01-01/senate-budget-pact-would-crimp-not-crush-u-s-growth.html