You're watching...
Harvard University Economics Professor Martin Feldstein on why potential tax hikes are the biggest risk to the recovering economy.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
Isn't that a positive economic news -- think we were well on our way to recovery a real recovery right.
Well not according to my next guest he says we could be headed into a new and deep recession.
If congress doesn't act fast.
Professor of economics at Harvard university and was president Ronald Reagan's chief economic advisor professor welcome back to the show great to see Easter he.
So tell us your theory here why is this economy at risk.
Well first of all the economy now isn't nearly as strong as a lot of people seem to think.
If you look at -- figures they came out today.
Home sales were down.
Recently new home sales and came out that was also.
Down.
Consumers'.
Incomes have been flat to down real average hourly earnings are down the one big positive news that encourage people.
Was we had three months of significance.
Increases in employment more than 200000 a month.
That's very good and the other hand.
We had slightly better than that three months in a row a year ago and last year turned out to be there and done -- growth of just about one and a half percent right so I think there isn't a lot of momentum out there.
Well let me let me do this next question for a second because.
You know there have been some positive news -- mentioned declining unemployment we've seen some bright spots in the housing sectors of payroll gains.
Consumer confidence is higher and yet you say there -- things out there that are -- offset those positives.
And a number one.
Are the tax increases were gonna get from Obama as the bush tax cuts expire at the end of the year.
And in something that nobody's talking about those -- the Obama care tax increases tell us how that's gonna -- this economy of growth.
Well look the big.
Cloud hanging over the economy's starting January 1.
Is the expiration of the bush tax cuts that's already built into the law if that nothing happens.
We will see -- -- in personal taxes and payroll taxes in taxes on capital gains and dividends and in corporate taxes.
The Congressional Budget Office estimates that that combined increase would be some 500 billion dollars that's 3% of GDP well.
No economy can take that kind of sudden hit.
So the question is will we see that turn around.
Hi there between now and the end of the year or immediately after that.
Because I think that serious risk to the economy.
And yet that increased.
-- tax revenue is supposed is supposed to sustain Obama care as well as increase spending and entitlements.
How -- turn the clock back.
We'd do to make sure this economy can expand and grow.
Well remember those -- -- tax cuts the bush tax cuts.
We're due to expire in 2010.
And there was a -- period of negotiation but eventually.
The Republicans persuaded.
President Obama.
That if you wanted to have a continuation of the bush tax cuts for -- lowering come.
Taxpayers it had to be for everybody and that's going to be the fight again.
This time so my hope is that.
People will see reason and -- -- will.
Allow the existing law to continue.
Well you know Washington DC not long I'm reason as you now that's not their strong point.
But but one of the things that I think you say is that is so interesting about this you say it's not just the tax increases themselves it's the threat to the tax increases that has an impact to what's that impact.
Well there's the danger is that long before we get to January you've got businesses that are sitting on a lot of cash but not investing.
And you've got consumers consumer spending in real terms has been flat three months in a row.
So why well one reason is that people don't know what's gonna happen to their tax rates and businesses don't know what's gonna happen.
To their tax environment so long before we get to January it's already a drag on the economy.
Well let me tell you what's a drag on the economy -- gas prices.
Are you concerned about that moving -- into negative growth.
Well it's certainly very large you know we import four billion barrels of oil a year we also by four billion barrels of domestic.
25 dollars a barrel.
Put those two together and you're talking about.
200 billion dollars it's more than one and a half percent.
Reduction in real incomes well elect could easily slow us down to crawl or -- By done the math you've run the numbers said it's pretty persuasive argument and I have to tell you you're one of the few folks out there are making it.
I just wanted to remind people out there you're with Nyberg other folks to figure out when the next recession is coming and when it's leaving you actually time the recession so.
You know a thing or two about that appreciate your time professor.
It's -- absolute pleasure having you here.
