* Estimate offers support to Obama’s position on taxing rich
* Republicans say report bolsters stance against any
increases
* S&P; analysts see 15 percent chance of “fiscal cliff”
happening
By David Lawder and Kim Dixon
WASHINGTON, Nov 8 (Reuters) – Allowing income tax rates to
rise for wealthy Americans, and not for the less affluent, would
not hurt U.S. economic growth much in 2013, the Congressional
Budget Office said on Thursday, stepping squarely 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 way of avoiding 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.
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,
though it added that it expects policymakers will probably
compromise in time to avoid that outcome.
Analysts at the agency now 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.
The Democratic White House did not respond publicly to an
initiative launched on Wednesday by the Republican Speaker of
the House of Representatives, John A. Boehner, to get talks
going to avoid the cliff.
Other leaders were consumed with putting their own
interpretation on the CBO report, highlighting the elements that
suited their position.
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 Sen. Max Baucus, chairman of the Senate Finance
Committee, said the CBO study “reaffirms the serious economic
risk America faces if we fail to deal with the fiscal cliff.”
The tax cuts were originally enacted during the
administration of President George W. Bush 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 President Barack Obama, after
Republicans swept the mid-term elections that year and took
control of the House.
That extension is now running out, just as the trigger date
arrives for automatic spending cuts Congress legislated 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 consequences to 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 office said in its report.
