Harvard economic historian Niall Ferguson has an explanation for why unemployment remains stubbornly high at 9.5 percent. It’s the threat of tax increases as the Bush tax cuts end this year.
“Why is it that small- and medium-sized businesses in the United States today are not hiring? Why is it that they're not expanding?” he said on CNN.
“It's because they see the tax hikes coming that are implied by this fiscal policy.”
The United States is running a budget deficit estimated by the White House at $1.47 trillion for this year. And the government debt burden totals around 10 percent of GDP.
The Bush tax cuts of 2001 and 2003 are set to expire Dec. 31. And some experts say the scheduled hikes will severely hurt small businessmen.
“The key issue here is can you get back to fiscal equilibrium in the same way that encourages business confidence, encourages the private sector?” Ferguson said.
“Or are you going to do it in a crazy way, like the Greeks currently are, by punishing business with higher taxation?”
Ferguson thinks the United States should refrain from slashing spending or raising taxes now, while the economic recovery is tenuous. But we need a workable plan for long-term fiscal stability, which the White House hasn’t provided, he said.
Centrist Democrats are coming around to Ferguson’s view.
Sens. Kent Conrad, Evan Bayh, and Ben Nelson have adopted the view that tax cuts shouldn’t be allowed to expire for the wealthy as the recovery falters.
© Moneynews. All rights reserved.