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American Action Forum President Douglas Holtz-Eakin on how the fiscal cliff would potentially impact the economy and jobs.
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Looming larger and larger in the possible fall looking steeper and steeper a new study says up to ten million jobs could be lost in just three years yeah likes.
That is scary one of the co authors of the study says that could happen.
Congress doesn't get its act together and do something about it with me now is the -- -- -- -- President of the American action forum.
Come up with that number because.
You know -- there -- say it.
Defense industry group that was going -- saying it was about two -- not included private sector jobs about a million from the defense sector million from private sector so.
Where do you think that that what you get to how -- -- -- ten million.
That the study referred to there was want to focus just on the spending cuts we're looking at the whole impact of fiscal cliff which is 400 billion dollars.
And higher taxes 200 billion dollars in spending cuts.
Put that together and you have a an initial hit a 4% of GDP and we're only -- -- 2% here right now so that's two years' worth the growth.
And you in -- -- on the economy.
And then you look at the research about how changes in taxes and spending affect the economy and we used the rules of thumb that that White House use when they tried figure out the stimulus so.
We we extrapolated that's about 10% decline in GDP.
And again of one percentage point decline GDP in this economy is about.
A million jobs so we just followed our noses unity attractive from the impact to what GDP -- the -- what the jobs will be sure and.
And a lot of it depends on what multiplier you use insurer Unita what you studies economics -- that opinion can -- I'm not a lot but no matter what it's -- delicious summer.
And -- point -- right.
And you know I certainly side of a key component was the impact on small business I thought that was really interesting -- you walk us through that.
But inside the fiscal cliff are increases in the top marginal tax rates up to -- -- 39 point six on income plus we have.
The the new Medicare surtax let's catch up to 45% effectively.
-- those kinds of marginal tax rates have a big impact on small businesses and so.
You'd see their propensity to hire down by nearly 20% in there propensity to investor down by about 15%.
-- if you think of the the workers in the small business sector of the economy are twenty to 25 million depending on the estimate.
-- -- looking at like four million of these job losses concentrated in that sector.
And the part that I think is most significant is if those rates stay the same those those jobs just go away and we have a smaller small business sector forever yeah most important.
Points I think a lot of people miss about the taxes on small business is that it -- tax that small business owner more.
That directly impacts what he's gonna pay his employees and whether he's gonna hire that extra per -- and if he does hire that person.
You know then that person does that spends money in it and it goes all through the economy so it just it makes a huge difference is that two to fix this though.
Because when I talk to business owners they say their party planning.
On this happening.
-- If the the -- things dubious fix it right now and to extend for a year current policy and avoid the fiscal cliff and then make sensible decisions about tax Foreman entitled reform -- get us on track for the long run.
I think everyone understands there's no action in that direction.
That's a mistake because as you have been hearing the impact doesn't start in January it starts now right and we're starting to see contractors worry about their contracts and talks of their their workers about layoffs we're starting to see the that the dividend investor who's gonna 45% actually plan mile I don't know.
And all that's gonna hurt in the -- that's already growing very slowly.
Right and that's the bottom line is that GDP is already so weak.
That right you then -- blare this on top of it makes the recovery -- my charter all right Douglas thanks for joining us.
