Utah's chief economist: Letting tax cuts expire could leave $2 billion hole in Utah economy
SALT LAKE CITY — Allowing tax cuts for the middle class to expire would impact 90 percent of Utahns and leave a $2 billion hole in the state's economy, according to Utah's chief economist.
And Juliette Tennert said that big number is a conservative estimate. It could actually be more than $2 billion. Regardless, it would mean residents would have fewer dollars to spend on some of life's basics, pay the mortgage and car insurance or put into savings.
"The biggest concern here is the magnitude and quickness of the impacts," Tennert said. "If there were some phasing in over time, the potential effects on the economy would not be so great."
If Congress does nothing to stop the country from falling over the so-called fiscal cliff in the next three weeks, a number of middle-class tax breaks would expire Jan. 1.
The Obama administration issued a report this month showing what that would mean for the states. It projects that in Utah, income taxes will automatically go up for 99 percent of families making less than $250,000 a year. The reports also shows that:
• About 900,000 families will see their federal income taxes increase.
• A typical median-income family of four (earning $65,200) could see its income taxes rise by $2,200 as a result of losing the combination of the expanded child credit, marriage penalty relief, and the 10 percent bracket.
• Utah families will receive a smaller child tax credit, and 379,000 low- and moderate- income working families with children will lose access to the credit, costing them an average of $1,010 a year.
• About 112,000 middle-class families will no longer get help paying for college from the American Opportunity Tax Credit.
• Small businesses will be able to claim immediate tax deductions for only $25,000, rather than $250,000 of new investment.
Tennert said the state has been taking its own look at the potential impacts and they mirror what the Obama administration is saying.
"The numbers in the report are consistent with the analysis we've done," she said.
If every tax cut were to expire, which Tennert sees as an unlikely scenario, Utahns would have less money in their pockets, which, in turn, would hurt state revenues. Tennert estimated that figure at $500 million. But coupled with the state's expected $300 million in new growth, the net result would be as much as a $200 million loss, she said.
Gov. Gary Herbert said this week that would means cuts to state government programs.
Tennert said there is a lot of uncertainty about what is going to happen. National revenue forecaster with whom the state works anticipate some sort of resolution, even a temporary one, in their baseline projections.
"We still have to work through these numbers depending on what happens," she said.
Obama and Democrats in Congress want the tax cuts set to expire at the end of the year to be extended for taxpayers with income below $250,000 a year, but not for the wealthiest 2 percent of Americans.
In exchange, the president has said he is willing to consider significant spending cuts that include unspecified changes to entitlement programs such as Medicare, the government health insurance plan for seniors.
Republicans are holding out for an extension of all the tax cuts but have become increasingly divided over the past two weeks about whether they can prevail in the face of Obama's firm stance and Republican control of only the House of Representatives but not the U.S. Senate.
Obama has said it's unacceptable for some Republicans in Congress to "hold middle-class tax cuts hostage" because they don't want to raise taxes on the wealthy, which include about 13,000 Utah families.
The president's plan to raise income tax rates on the rich would return the rates to what they were in the Clinton administration, when the economy created 23 million jobs, including 267,900 private sector jobs in Utah, according the White House.
In the weekly GOP address, Sen. Orrin Hatch called Obama's fiscal plan a "classic bait and switch."
Raising the top two marginal tax rates would put nearly a million businesses and 700,000 jobs at risk, Hatch said. Rather than raising taxes on the rich, he said Congress should enact comprehensive tax reform that would generate more revenue and create jobs.
Some Democrats are proposing a "disastrous Thelma and Louise strategy" that would put "millions of middle-class families, small businesses and our already weak economy in further jeopardy," the senator said.
Treasury Secretary Tim Geithner said during a CNBC interview Wednesday that the Obama administration is "absolutely" prepared to go over the "fiscal cliff" if Republicans do not agree to tax the wealthiest Americans.
Hatch called it the "most stunning and irresponsible statements I’ve heard in some time. Going over the fiscal cliff will put our economy, jobs, people’s paychecks and retirement at risk, but that is what the White House wants, according to Secretary Geithner, if they don’t get their way."
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