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.