- Days left
Tax the richBy David Lawder and Kim Dixon

WASHINGTON, Nov 8 (Reuters) - Allowing income tax rates to rise for wealthy Americans, and maintaining rates for the less affluent, would not hurt U.S. economic growth much in 2013, the Congressional Budget Office said on Thursday, stepping into a dispute between Republicans and Democrats over how to resolve the so-called "fiscal cliff."

The report by the authoritative non-partisan arm of Congress is expected to fuel President Barack Obama's demand for higher taxes on the rich, part of his proposal to avoid the full impact of the expiring tax cuts and across-the-board spending reductions set to begin in early 2013 unless Congress acts.

Republicans argue that any tax increases would be devastating to the economy, particularly to small businesses, and to U.S. employment rates.

They have held firm to their position that none of the cuts, which originated during the administration of President George W. Bush, should be allowed to expire.

The CBO said the tax hikes for the wealthy would reduce job growth by around 200,000 jobs, much less than the 700,000 in job losses claimed by Republican Speaker of the House John A. Boehner.

Obama has also stuck to his position, with the White House reiterating on Thursday that the president sees his election victory on Tuesday as an endorsement by voters of his view on higher taxes for the affluent.

"One of the messages that was sent by the American people throughout this campaign is ... (they) clearly chose the president's view of making sure that the wealthiest Americans are asked to do a little bit more in the context of reducing our deficit in a balanced way," senior White House adviser David Plouffe said.

Uncertainty Scaring Markets

The disagreement over the tax cuts is a major roadblock to any agreement in Congress, as it is coupled with the spending issues also on the table.

The lack of progress in ending the standoff is spooking global markets, which fell again Thursday in part because of political uncertainty in Washington.

The concern was underscored by the credit rating agency, Standard & Poor's, which said on Thursday it sees an increasing chance that the U.S. economy will go over the cliff next year. But it also said it expects policymakers will probably compromise in time to avoid that outcome.

Analysts at the agency see about a 15 percent chance that political brinkmanship will push the world's largest economy over the fiscal cliff.

With only five days remaining before the U.S. Congress begins its post-election session, top political leaders in Washington provided little new assurance Thursday that they can act in time.

In an interview with ABC Television's Diane Sawyer, Boehner repeated what he has been saying for two years: "Raising tax rates is unacceptable. ... Frankly, it couldn't even pass the House. I'm not sure it could pass the Senate," he said, according to a transcript provided by the network.

The Democratic White House did not respond publicly to an initiative launched on Wednesday by Boehner to get talks going to avoid the cliff. The president is scheduled to make a statement on the economy Friday.

In the absence of concrete developments, the CBO report became the focus of argument Thursday. Reports by the CBO are designed to assist Congress in making difficult fiscal decisions, but they are also used by partisans to bolster their own arguments.

A statement from the Republican-controlled House Ways and Means Committee said the CBO report "confirms that raising taxes on all taxpayers will result in fewer 'help wanted' signs hanging in the windows of businesses across the country. Job creators agree, and have made it clear, that raising taxes will result in a weaker economy and fewer jobs for the millions of Americans struggling to find work."

Democratic Rep. Chris Van Hollen, ranking member of the House Budget Committee, said the report "underscores the need to prevent the so-called fiscal cliff from harming American families and businesses, and to instead enact a balanced, long-term deficit reduction plan."

The term "balanced" plan is the Democratic code for tax increases.

The tax cuts were enacted during the Bush administration, but were made temporary, in part to reduce the appearance of exploding the already soaring U.S. deficit over the long term.

They were extended in 2010 for two years under an agreement between Republicans and Obama, after Republicans swept the mid-term elections that year and took control of the House.

That extension is running out, just as the trigger date arrives for automatic spending cuts Congress approved in 2011 as part of a deal to avoid a default on U.S. government debt.

Various Scenarios

The report from CBO laid out the economic effects of a number of options that lawmakers will consider as they deal with the fiscal cliff events.

The CBO said extending all of the tax cuts would boost U.S. gross domestic product growth next year by a little less than 1.5 percentage points.

If the tax rates were extended only for individuals earning less than $200,000 and couples earnings less than $250,000, CBO said, growth would rise by 1.25 percent.

Wall Street estimates show third-quarter GDP growth was 2.8 percent. Unemployment is currently at 7.9 percent.

Eliminating the automatic spending cuts to military and domestic programs would add back 0.75 percentage points of growth, as would extending an expiring payroll tax cut and long- term unemployment benefits that are expected to end next year, the CBO said.

But the office also warned of the consequences of taking such actions without reducing deficits that have run at $1 trillion in each of the past four years.

"CBO expects that even if all of the fiscal tightening was eliminated, the economy would remain below its potential and the unemployment rate would remain higher than usual for some time," the report said.

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

Intro to Retirement

Get started early planning for your long term future.

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum


Filter by:

What is this guy smoking? Raising Taxes will kill job growth. Raising taxes on business people will increase everyone's cost of living as this tax increase will be passed on to the consumers. Obama knows this but continues to play class warfare with the people. Obama, Santa Clause to the people who won't work cannot continue. We have 47% not paying any taxes and 53% cannot take care of them. Do the Math Liberals. We are spending $1.2 Trillion Dollars more than we take in. Forty Cents out of every dollar the government spends is borrowed. We owe Seven times more than we collect in taxes. What part of this do you not understand?

November 15 2012 at 11:41 AM Report abuse +1 rate up rate down Reply
1 reply to COMMON SENSE's comment

Obama's agenda is to have the state control all businesses.................and they say he isn't a Socialist/Communist.

November 15 2012 at 4:36 PM Report abuse +1 rate up rate down Reply

Redistribution of wealth is Communism.

November 13 2012 at 8:57 PM Report abuse +1 rate up rate down Reply

The Republicans shut down the government during Clinton's term, I will not be surprised if they try it again.

November 13 2012 at 7:03 PM Report abuse -1 rate up rate down Reply
2 replies to ecsnydr's comment


November 13 2012 at 8:56 PM Report abuse +1 rate up rate down Reply

Generally I would consider "shut down" as WAKE UP .... the money tree has only a few branches left and many are tired of paying for inefficient programs and prideless people with hands out always for more. If no deal .. that would be fine, lets increases taxes for all .. would be better for all to have a little skin in the game and see what is to "pay a little more" .... but has to be for all .. not a select group

November 16 2012 at 10:33 AM Report abuse rate up rate down Reply


But what will the $8 billion the CBO projects from the tax (if no one changes their behavior!) do to affect our TRILLION DOLLAR PLUS annual deficits, or our $16 TRILLION DEBT!

The answer is NEXT TO NOTHING!

Since his inauguration Obama has been putting $4 billion EVERY DAY on our national credit card. The $8 billion covers TWO DAYS of Obamadebt!

This is merely the continuation of the dishonesty/distortion of our thorougly corrupt national Obamamedia.

November 13 2012 at 12:54 PM Report abuse +1 rate up rate down Reply

if supplyside is good, how many republicant presidents have balanced the budget?????? reagan quadrupled the debt, bush doubled the debt!!! the rightwingnuts keep complaining about 4 years of trillion dollar deficit without understanding that bush wrote the 2009 budget with 1.2 trillion dollar deficit, and obama has not increased federal spending 3.6 trillion in2010, 3.7 trillion in 2012!!!! these are facts which rightwingnuts will not accept!!!!!

November 13 2012 at 11:06 AM Report abuse -1 rate up rate down Reply

A flat tax would be fair to everyone. That is why the Dems will never allow it.

November 12 2012 at 9:05 PM Report abuse rate up rate down Reply
Holli, Chaney

We are going into Debt at 5 billion a day..That means we borrow the equivalent of Bill Gates Fortune ever 8 days.. Our rich don't have enough money to pay for what we spend.

November 12 2012 at 5:59 PM Report abuse +1 rate up rate down Reply
Holli, Chaney

Who is John Galt?

November 12 2012 at 5:56 PM Report abuse rate up rate down Reply
Holli, Chaney

Repealing the Bush tax cuts on the rich will raise about 35 billion a year.. Our deficit is 1.2 trillion a year. Too much fuss about nothing...

November 12 2012 at 5:54 PM Report abuse rate up rate down Reply
Holli, Chaney

I though the Clinton Tax Levels are the reason we had such a great 90s.. Let them all expire.. let everyone pay more and Obama will have the 90s all over again.>Right???

November 12 2012 at 5:49 PM Report abuse rate up rate down Reply