A few weeks ago, around Tax Day, Heritage started warning of Taxmageddon—a one-year, $494 billion tax hike that slams the economy on January 1, 2013, unless Congress and President Obama act to stop it.
At that time, Taxmageddon was merely a blip on Washington’s radar, because the conventional wisdom was that Congress and the President would deal with it in the lame duck period after the November election. We argued then that this was a bad idea.
The uncertainty plaguing the economy today because of Taxmageddon lingering in the near future is slowing economic growth right now, and as today’s jobs report reminds us, the economy remains very weak, with unemployment stuck above 8 percent. And there is no telling what could happen in that lame duck session, which could lead to the unsettling proposition that Taxmageddon would indeed occur.
The drag on growth that Taxmageddon is causing now, combined with the unpredictable environment of a lame duck session of Congress, is more than enough reason for Congress and President Obama to act right now to prevent Taxmageddon.
In what should be a rattling and action-inducing wake-up call, Mohamed El-Erian, CEO of Pimco, the world’s largest bond investment firm, reiterated in an article in The Washington Post what we’ve been saying for weeks.
…few think the fiscal cliff will materialize. After all, the deadline was always meant to act as a catalyst for serious revenue and expenditure reforms — including revamping the federal tax code, streamlining entitlements and realigning incentives to favor production and investment rather than consumption and operational avoidance of U.S. tax jurisdictions. But complacency has continued to reign, leaving the country exposed to unnecessary economic trauma and renewed political dysfunction.
Markets are discounters of the future, and prolonged political inaction is likely to encourage companies to postpone building plants and purchasing equipment and to discourage them from hiring.
All this speaks to the importance of acting now to avoid getting too close to the cliff’s edge. (emphasis added)
The markets are now alert to the dangers of Taxmageddon. It seems the only people left who don’t see the pressing need to stop Taxmageddon right now are the politicians in Washington.
It is time they wake up and realize what is obvious to everyone else: They need to stop Taxmageddon soon, and certainly long before election day.