CBO: Taxmageddon is real, people

posted at 2:41 pm on May 23, 2012 by Ed Morrissey

It’s not new, either.  Thanks to the compromise cobbled together in the lame-duck Congress after the 2010 midterms, everyone knew that the big issues on tax rates got punted to after the 2012 elections.  The same thing was true of spending cuts in last summer’s debt-ceiling fight.  Both parties planned to run on their approach to solving the problem, and then hashing it out after this election before time ran out.  A new CBO report might put pressure on Congress to address it before the election:

Tax hikes and spending cuts set to take effect in January would suck $607 billion out of the economy next year, plunging the nation at least briefly back into recession, the nonpartisan Congressional Budget Office said Tuesday.

Unless lawmakers act, the economy is likely to contract in the first half of 2013 at an annualized rate of 1.3 percent, the CBO said, before returning to 2.3 percent growth later in the year.

Canceling those tax and spending policies would protect the recovery in the short run and encourage more vibrant growth, around 4.4 percent, in 2013, the CBO said. However, unless lawmakers adopt policies that would reduce budget deficits by a comparable amount down the road, the CBO said, the national debt would continue to climb, imperiling future economic growth.

The problem with waiting it out is that businesses have to calculate investments in the near term based on best estimates of demand in the next year.  They already face a bewildering array of ambiguities on the regulatory front, from whether ObamaCare will exist at all and what forms the still-missing regulations will take, to energy prices thanks to regulatory attacks on coal and natural-gas extraction, labor-organizing rules, and the heavy burdens of Dodd-Frank, among many others.  The economy appears to have slipped deeper into stagnation already, and continued ambiguity on taxes will only make that situation worse.

Sen. John Thune told Fox News that Congress simply can’t wait to act, if they want to avoid significant economic damage:


Don’t expect an early resolution to the issue.  Both sides want to run on tax policy in this election.  The only way this might get resolved is if the White House decides it needs a boost to the economy this summer, which a definitive resolution might produce.  After all, once businesses see a light at the end of this particular tunnel, they can put some investment back into their operations and plan for a non-recessionary 2013.  If the economy and job creation continue to drag in May and June, Democrats might be willing to cut a deal — or at least kick the can down the road for another couple of years, allowing everyone to still debate the topic until November without damaging the economy.

It’s not just Taxmageddon that we should fear, either, as Suzanne McGee argues at The Fiscal Times. We may have to deal with Drachmageddon, too:

It’s a stark dilemma – how to properly balance growth and fiscal health – and it is one that already is making investors extremely uneasy. The closer we come to the November elections, the more it is likely that those jitters will shape the direction of the stock market, regardless of who seems likely to win the White House or end up dominating Congress, since neither party seems prepared to give way on these issues, which already have come close to shutting down the federal government.

Not ominous enough? Well, there is the ticking time bomb now being referred to as “drachmageddon,” or the prospect that Greece will abandon – or be forced out of – the Eurozone in the near future. European politicians, including British Prime Minister David Cameron, have taken to the airwaves to huff and puff about the apparent wish of Greek voters to possess and simultaneously devour their cake. “They cannot just vote for saying, ‘could people just carry on giving us some money so we do not have to change anything,’” Britain’s Justice Secretary Kenneth Clarke (a former chancellor of the exchequer) pointedly warned, cautioning the Greeks against the ramifications of electing “cranky extremists.”

The news on “drachmageddon” – or the possibility that the Greeks will wake up one morning this summer to find that the Euros in their bank accounts have been swapped back into drachma, their pre-Euro currency – wasn’t any better today. An EU summit is scheduled to take place in Brussels, but leaders aren’t speaking with a single voice in the discussions with Greece. German Chancellor Angela Merkel has signaled some willingness to compromise, but her views still remain poles apart from those of her newly elected French colleague, French President Francois Hollande.

At least we have the ability to right our own ship … for the moment.


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Oh, so Congress can fix this? Yeah, that’ll do it. I feel better already, don’t you?

natasha333 on May 23, 2012 at 2:47 PM

There is a one-two punch coming. Taxes will go up and energy costs are set to skyrocket. Those two will absolutely shut down the US economy.

I don’t care what you produce, if you want to produce more of it, it takes energy to make it, ship it, use it. GDP can basically be converted directly to BTU. An given increase in GDP over inflation will require some increase in BTU of energy consumed. By greatly increasing the cost of energy, US economic activity will be throttled.

crosspatch on May 23, 2012 at 2:47 PM

I work for a fairly sizable bank and we are already into 2013 budget planning. In the regulatory office we have advised all the business units to assume maximum regulatory burdens and costs for next year in estimating their budgets. I will not be surprised to see at least some contingency plans for layoffs, even though our revenues have been growing consistently. The costs are getting to be astronomical, and that’s with less than one-third of the Dodd-Frank rules even written yet. The only people we are hiring right now are auditors, compliance people, and risk managers.

rockmom on May 23, 2012 at 2:48 PM

The 0 economy.

Bmore on May 23, 2012 at 2:48 PM

Remember though, this is not the same as “raising taxes”, unless you’re the evil rich or something…

nextgen_repub on May 23, 2012 at 2:50 PM

This is something that Romney should be talking about.

milcus on May 23, 2012 at 2:51 PM

Want to sell more burgers? You need to fry more burgers and purchase more meat and more people need to travel to your store. You have to increase energy consumption. Energy costs go up? Burger prices go up to compensate. Energy prices are reflected in EVERYTHING in the economy. The Obama administration is intentionally doing what has maximum detrimental impact to the US economy.

crosspatch on May 23, 2012 at 2:52 PM

Kick the can so I won’t get laid off when Reid and obummer tank any decision.

jake49 on May 23, 2012 at 2:52 PM

Boener and obama sittin’ in a tree, waiting for reid to get on his knees…..

Wolfmoon on May 23, 2012 at 2:52 PM

Read today that coal plant shutdowns now have coal producing 36% of electricity vs the 44% from the beginning of the year. Five Texas coal plants were given an extension by the EPA to remain operable for a few more months.

What’s he going to do when people open power bills that have skyrocketed for a couple of months before November?

DanMan on May 23, 2012 at 2:55 PM

Have a nice nap, everybody?

Nice thing you all are just waking up to this. The Bush Tax, debt ceiling, and other kick-the-can-down-the-road deals are the — ahem — Perfect Storm of Chickens Coming Home to Roost.

Question is: will Preezy be a potus or will he pull an Animal House?

The War Planner on May 23, 2012 at 2:55 PM

Sen. John Thune told Fox News that Congress simply can’t wait to act, if they want to avoid significant economic damage:

…Speaker of the House Bonehead…will issue a ‘strongly worded’ statement!…and hold his gavel up in the air.

KOOLAID2 on May 23, 2012 at 2:56 PM

You know, I never really gave it much thought since I assumed Congress would never allow anything beside the top income tax rates to expire. But if they don’t act on this before the election(and NO ONE believes for a second that they will), and we end up in a lameduck session following a GOP landslide in which they retake the Senate and White House, I wouldn’t put it past the Dems to allow Taxmageddon to occur in order to make life hell for Romney and the incoming Congress.

Doughboy on May 23, 2012 at 2:57 PM

This is something that Romney should be talking about.

milcus on May 23, 2012 at 2:51 PM

Absolutely.

UltimateBob on May 23, 2012 at 2:57 PM

Want to sell more burgers? You need to fry more burgers and purchase more meat and more people need to travel to your store.

crosspatch on May 23, 2012 at 2:52 PM

..Pepsi..no Coke.

The War Planner on May 23, 2012 at 2:57 PM

…not to worry…Harry Reids on top of everything!
…the MSM don’t have any questions to ask him…

KOOLAID2 on May 23, 2012 at 2:59 PM

hey thune, how about we just throw tariffs on some foreign goods? you’re no longer a credible spokesperson.

@obamuh on May 23, 2012 at 3:03 PM

What’s he going to do when people open power bills that have skyrocketed for a couple of months before November?

DanMan on May 23, 2012 at 2:55 PM

Lose the election?

Oldnuke on May 23, 2012 at 3:04 PM

Pepsi..no Coke.

The War Planner on May 23, 2012 at 2:57 PM

Ha!

I don’t wanna cheeseburger! It’s too early for a cheeseburger.

thebrokenrattle on May 23, 2012 at 3:04 PM

Why would Dems touch it now?

If you extend the cuts your base will howl before the election.

If you let them expire this year with Romney as Pres you can spin the drop in growth as his fault.

Better for Dems to wait until after the election before they decide…businesses be damned!

nextgen_repub on May 23, 2012 at 3:07 PM

Senator Thune is a true conservative. He should be on Romney’s short list.

weaselyone on May 23, 2012 at 3:08 PM

Want to sell more burgers? You need to fry more burgers and purchase more meat and more people need to travel to your store. You have to increase energy consumption. Energy costs go up? Burger prices go up to compensate. Energy prices are reflected in EVERYTHING in the economy. The Obama administration is intentionally doing what has maximum detrimental impact to the US economy.

crosspatch on May 23, 2012 at 2:52 PM

Eh, if that happened, the new Congress would just roll everything back as their first order of business and make everything retroactive to January 1st. Sure, it would cause a few weeks of unneeded confusion, but everyone would know what was coming, so hopefully the panic would be lessened.

Shump on May 23, 2012 at 3:08 PM

The Dems don’t want to do anything before the election – because they WANT to raise tax rates anyway – and Obummer will have “more flexibility” after the election…..

dentarthurdent on May 23, 2012 at 3:09 PM

Lose the election?

Oldnuke on May 23, 2012 at 3:04 PM

to borrow from Del Dolemonte….A+

DanMan on May 23, 2012 at 3:09 PM

Er… what just happened? My message ended up with a quote totally different from the one I was replying to. It was suppose to be a quote of this:

You know, I never really gave it much thought since I assumed Congress would never allow anything beside the top income tax rates to expire. But if they don’t act on this before the election(and NO ONE believes for a second that they will), and we end up in a lameduck session following a GOP landslide in which they retake the Senate and White House, I wouldn’t put it past the Dems to allow Taxmageddon to occur in order to make life hell for Romney and the incoming Congress.

Doughboy on May 23, 2012 at 2:57 PM

Shump on May 23, 2012 at 3:09 PM

Yeah, I’ll bet Chancellor Merkel is feeling pressure. The Greeks, (and soon the Italians) won’t accept the austerity required to keep the Euro from disintegrating, and the Germans are tired of bailing them out for it.

Everyone worries what would happen if Greece left the Euro. My question is: what if the Germans do?

ss396 on May 23, 2012 at 3:10 PM

So the folks who created the problem will fix it?

I’m doubtful.

Deafdog on May 23, 2012 at 3:10 PM

Wish Team Romney would make the point to extrapolate his Bain “skill set” onto Taxmageddon and every other ailment afflicting the country. As President, Romney would still work for the investors/American people cuting down on government workers/programs (oooh evil layoffs), make necessary Government more efficient, and destroy job killing regulations to save the business/country. If past is prelude, as HR Departments everywhere bank on, he’d be very successful.

And screw you, Biden. Any plumber, crack and all, is helluva lot more qualified than either you or your King Tut of a boss.

LetsBfrank on May 23, 2012 at 3:10 PM

TaxAgeddon PLEASE.

leftnomore on May 23, 2012 at 3:13 PM

Impending economic doom in 2013? Definitely George W Bush’s fault.

Definitely.

Polish Rifle on May 23, 2012 at 3:15 PM

Eh, if that happened, the new Congress would just roll everything back as their first order of business and make everything retroactive to January 1st. Sure, it would cause a few weeks of unneeded confusion, but everyone would know what was coming, so hopefully the panic would be lessened.

Shump on May 23, 2012 at 3:08 PM

Not that simple. The regulations are issued by the Executive branch (Obama administration) not by Congress. They didn’t create them so they can’t “roll them back”. They are regulations produced by the EPA. And these are regulations that take power plants off line. They can’t just turn them back on again. What is happening is that the plants that are subject to being banned in 2015 are being taken offline now as they come up for major maintenance. It doesn’t pay to invest a lot of money in performing heavy maintenance on a plant that is only going to produce for another two years. So as the plants come up for maintenance, they are just being taken off line.

It isn’t like they just flip a switch on January 1, 2015 and drop these plants off the grid.

crosspatch on May 23, 2012 at 3:15 PM

The news on “drachmageddon” – or the possibility that the Greeks will wake up one morning this summer to find that the Euros in their bank accounts have been swapped back into drachma, their pre-Euro currency – wasn’t any better today.

This would be the best thing that could happen to both Greece and the other Euro nations.

The Euro-zone countries are all sovereign democracies, whose parliaments control national fiscal policy. If each country had its own currency, its central bank could control monetary policy (interest rates, exchange rates against other currencies) to accommodate the fiscal policy, and Greece could devalue its currency to attract foreign tourists to spend money in Greece.

But if Greece and the other Euro nations are tied to a single currency, both suffer–Greece because tourists will spend Euros in other countries where labor is cheaper, and the other countries because they’re wasting Euros bailing out Greece.

The Euro was always a bad idea to begin with. It can only work between nations with similar fiscal policies.

Steve Z on May 23, 2012 at 3:24 PM

Tax hikes and spending cuts set to take effect in January would suck $607 billion out of the economy next year,

Tragically, letting the government suck another $607 billion next year out of the economy will still result in a massive deficit even in the year it is confiscated.

I would also bet, that despite the CBO warning, should Mr. Obama hold onto the White House and/or the Democrats hold onto the Senate, the predicted recession will be pronounced as “unexpected.”

Perhaps being a Democrat is a form of Alzheimer’s.

MessesWithTexas on May 23, 2012 at 3:25 PM

The 0 economy.

Bmore on May 23, 2012 at 2:48 PM

My mistake. Fixed.

The 0 Economy™

Bmore on May 23, 2012 at 3:26 PM

Planned and executing to a tee.

SouthernGent on May 23, 2012 at 3:27 PM

Boner will cave and try to sell it as a big win.

The Rogue Tomato on May 23, 2012 at 3:28 PM

And Romney gives us an ad that he lifted straight from the Obama ad about Bain.

Unemployment is bad, but this is the end of civilization as we know it. Don’t I wish Romney could be as ruthless with the man who would destroy everything as he was with Gingrich and Santorum?

THIS, Mitt, is what this election is about.

Portia46 on May 23, 2012 at 3:40 PM

The Republicans should send a bill up, from the House, on exactly what they feel you should do about this. Then, let Reid play the same game he’s been playing and leave it, but tell the public there will be no tax package passed in the lame duck. If they have to wait, then they’ll wait and the winner of the election will deal with taxes. If Obama wins he can tax rich people to death, if Romney wins Republicans promise to deal with the tax code, the whole tax code and simplify it.

I’m sick of Democrats delaying everything and then rushing through some 1000 pages full of hidden stuff and saying that Republicans are trying to do some un-Godly thing to the country.

Make them pay.

bflat879 on May 23, 2012 at 3:45 PM

Mission accomplished.

rogerb on May 23, 2012 at 3:50 PM

Everyone worries what would happen if Greece left the Euro. My question is: what if the Germans do?

ss396 on May 23, 2012 at 3:10 PM

We offer to let them join NAFTA. I wouldn’t mind adding some Sour Krauts.

KW64 on May 23, 2012 at 3:50 PM

It’s not just Taxmageddon that we should fear, either, as Suzanne McGee argues at The Fiscal Times. We may have to deal with Drachmageddon, too:

Yes. Thank you for posting this, Ed. I’ve been bringing this up for a while now.

Greece doesn’t seriously plan to ever pay back the stimulus they received IMHO. Their finance ministry appears abandoned…

dogsoldier on May 23, 2012 at 3:51 PM

Not that simple. The regulations are issued by the Executive branch (Obama administration) not by Congress. They didn’t create them so they can’t “roll them back”.

Technically that is true, but only on the surface. The agencies(such as the EPA) were created by law, passed by Congress, at the urging of the respective President reporting to the office of President. Those agencies enact regulations given the authority invested by Congress when they passed the laws forming those agencies. Congress can roll back that authority, supersede specific regulations, or even remove the agency entirely by passing an appropriate law.

Given the lawlessness of current executive agencies such as the EPA, such a strong hammer is the only response that I believe will pull back those agencies from the bounds of tyranny they keep pushing.

dominigan on May 23, 2012 at 3:55 PM

Technically that is true, but only on the surface. The agencies(such as the EPA) were created by law, passed by Congress, at the urging of the respective President reporting to the office of President. Those agencies enact regulations given the authority invested by Congress when they passed the laws forming those agencies. Congress can roll back that authority, supersede specific regulations, or even remove the agency entirely by passing an appropriate law.

dominigan on May 23, 2012 at 3:55 PM

While Romney would sign such a roll back, would the Dems not filibuster it? To use reconciliation to get around the filibuster, you have to do a budget first.

KW64 on May 23, 2012 at 4:03 PM

While Romney would sign such a roll back, would the Dems not filibuster it? To use reconciliation to get around the filibuster, you have to do a budget first.

KW64 on May 23, 2012 at 4:03 PM

Easier and faster for President Mitt Romney to order his EPA appointee to issue a new set of rules which are easier to meet than little Bammie’s rules.

Start with this rule: Carbon Dioxide is not a pollutant.

slickwillie2001 on May 23, 2012 at 5:04 PM

Romney will replace the political appointees who are now running agencies like the EPA and direct the new appointees to begin rolling back what the Obama Administration has done via regulatory fiat that has hurt businesses and jobs. He doesn’t need the approval of Congress to do that. These agencies will do what they are directed to do, as long as they don’t violate any existing laws. Federal employees who refuse to work with the new management will be pushed aside and replaced with those who will. Romney can also slow down the implementation of onerous regulations while working with Congress to get bad laws repealed or modified. If Romney wins and the Republicans flip the Senate, Democrats who use the filibuster to block needed reforms may soon find Senate Republicans exercising the nuclear option by changing the Senate rules to limit it’s use. They threatened but failed to do so the last time that they had control, but the country wasn’t facing the abyss like it is now. After November, many surviving but vulnerable Democrats may also abandon the party line and save their own skins by actually working with Republicans to pass needed reforms. Even Democrats are beginning to reluctantly accept the fact that their Keynesian approach to fixing the economy hasn’t worked. More and more Americans are beginning to wake up and understand that pretending that there are no consequences to remaining on our current path is economic suicide. Indeed, if we continue with what Obama has started, the rich will soon be much poorer along with everyone else in the middle and poor classes and that outcome will make most Americans even angrier than they are right now.

NuclearPhysicist on May 23, 2012 at 5:12 PM

I’m cautiously optimistic that we’ll prevail in November and have a President Romney, but if we’re not, Republicans in Congress need to say either make the current tax rates permanent or let them expire. There should be no middle ground. Let Obama raise taxes on the middle class.

This ridiculous 2 year extension was a life preserver for Obama. The American people need to understand that elections have consequences, and that increasing spending is the same as raising taxes.

BradTank on May 23, 2012 at 5:19 PM

Let’s see. A Republican Congress that’s passed numerous pieces of legislation that’s been bottled up in the Senate led by a senile Democrat who can’t even pass an annual budget. Couple that with a President who would fail an Econ 101 exam.

Yeah, we’re pretty much SCREWED!

GarandFan on May 23, 2012 at 5:36 PM

Run on tax policy… let everyone know that unless the Senate changes hands that your taxes will necessarily skyrocket.

Also remember that on energy, it is about supply. Yes the energy will be extraordinarily high along this path. IF YOU CAN GET ANY AT ALL. When you have no plants in a region to produce enough, then it isn’t a question of continuous service but of discontinuous service.

Want to change that?

Then you want a change in the government from top to bottom.

Want blackouts, sky high prices on electricity AND sky high taxes on anything you earn? Put Obama and Democrats in office.

Oh, and good luck on running a business if you do. And getting a job. It isn’t ‘taxing the rich’: there won’t be any.

See Greece?

Want that?

Vote for Democrats.

ajacksonian on May 23, 2012 at 6:44 PM

Somebody at the CBO is smoking some toxic hash. 2.3% growth later in the year? If we don’t get Republican majorities in both houses we are all going to wish planet Nibiru had put and end to us all.

halfbaked on May 23, 2012 at 6:56 PM

Enough is enough. We pay for tax refunds for illegals’ children living in Mexico. We pay for million dollar govt. parties in Vegas. We pay for bridges to nowhere, roads to ruin and high speed trains to trash. If the tax problem is not fixed, either through replacement of the current system with FAIR or FLAT tax, with repeal of the 16th Amendment, or at the very least, restoration of the “Bush” tax cuts, then We The People, should declare a nation-wide taxpayer strike. And come April 15th of next year, instead of sending taxes owed to the IRS, put your tax bill funds in escrow until the federal tax n spend mess is fixed.

devan95 on May 23, 2012 at 7:02 PM