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Tax Foundation president Scott Hodge gives his outlook for going over the fiscal cliff.
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Our right to leaders in DC maybe scrambling to figure this out but our first guest says.
He really does fear we're going to hit the fiscal cliff he says just think of Wylie coyote acne -- -- Joining us to Scott Hodge president of the Tax Foundation Scott welcome.
You are well known for your innovative ideas on tax policy net 1990s -- a campaign to include a 500 dollar per child credit and capital gains tax cuts.
What's your best idea this time -- -- I think the best idea right now is for everybody take a deep breath.
And -- into next year I think that all of the our tax cuts should be extended for one more year.
To give congress and the White House some extra time to get off of their political posturing and make a rational deal between them.
This is the worst time of the year to make some sort of a deal this eleventh hour deal during a lame duck session.
When a lot of members of congress have been defeated or retiring.
And so you know this is what got us into this position two years ago was a lame -- deal -- exactly the same moment the eleventh hour.
And it's time I think to just -- this in the next year taken -- breath.
And Doug come to the negotiating table and work -- a Smart deal not just a political.
So Scott we're kicking the can down the road in your view what's the timeline in what is the best deal look like in terms of -- Well I think that the best deal comes from fundamental tax reform all what a lot of people are talking about.
Let's lower rates across the board eliminate as many deductions as possible broaden the tax base we call it.
That'll help economic growth dramatically.
But it's gotta -- what about a Middleton -- fifteenth -- threshold.
Our -- -- Tennessee higher taxes after we've exhaled to your point.
I think we added is it may be split the difference here and say okay people above that level -- gonna pay higher taxes taxes but maybe not higher tax rates if you eliminate some the deductions that are targeted specifically to them.
You can avoid the economic effects of higher marginal rates and simply increase their overall burden.
-- so -- Tax Foundation did some research and out which states stand to -- the best and the worst if we do go over -- fiscal cliff so let's start.
With the good news the lowest tax increase from the fiscal -- we're moving to Hawaii right Colorado is lying in state.
Exact.
In the end embed those are kind of not really -- -- -- but a lot of these two us states are sort of in the middle if you well their incomes are in the middle they have a lot of people in the middle class.
And so -- people will often.
C the least burden because they're not paying all turn them minimum tax they're not benefiting from a lot of a child that it.
Tax credit and some of the other things whereas at the other end of the scale the states that are hit the most are those states that I have a lot of people that are in the AMT.
And that's going to be a big deal come and the fiscal cliff and that they -- Connecticut teenager and -- -- landed there.
Exactly interestingly enough a lot of Blue States in there that voted for Obama.
-- the other end of the yes scale our people that are in poorer states in the south and -- southwest.
Those states are also gonna see a big tax increase and largely because they benefit from a lot things like the child tax credit.
Many of the refundable credits the payroll tax cut would be most disproportionate to them.
You know I said in the introduction to he's got that that child tax credit really is in a lot of -- -- claimed defamed.
If you will do you think that we'll continue is that safe.
Well I I do think so though I think we ought to worry about the fact that one so much of it is refundable now which means that even if you don't pay any income taxes you still get a tax rebate from that the I -- in the iris is -- giving out about a hundred billion dollars a year.
And refundable tax credits to pay no income taxes I look to that to be a big part of the negotiating.
Between the White House and -- Republicans should we put some of these people back on the tax rolls.
Part of that 47%.
-- no longer pay income tax so what's the worst case scenario we do hit the fiscal -- terms of the autonomy.
Yeah I think -- be terrible we've done the economic modeling on this we see that this would have a severe impact on the long term economy about the equivalent.
Before Hurricane Katrina is.
Hitting the United States each and every year over the next ten years it would knock about seven percentage points off the area -- percent off -- economy over the next ten years.
The equivalent of about a trillion dollars in GDP could not as many as eight or nine million people off the employment rolls he added that -- -- France's.
This serious stuff.
-- that much -- time now -- always appreciated.
