US deal on ‘fiscal cliff’ would slow economic growth, experts say

The recent deal on the tax issue and spending cuts in the United States will hurt its economic growth and result in less job creation, economists say.

On January 1, the House of Representatives voted 257 to 167, approving a deal backed by the Senate that would avert the so-called fiscal cliff.

The agreement consists of raising taxes on the wealthiest Americans, while exempting others who earn less than $450,000 a year.

Gregory Daco of IHS Global Insight financial institution said, “We are looking at growth of 1.7 percent, somewhere around there” after around 2.0 percent GDP growth in 2012. “That is the measure that is going to hit the most people” by itself cutting 0.4 percent from potential growth, he added.

He also said tax hikes for US citizens, who earn over $400,000, to 39.6 percent from 35 percent would not have a considerable impact.

“A dollar for them is not the same as a dollar for someone earning $50,000.”

Daco also stated that spending reduction will raise the concerns of businesses and could continue to hold off on investment and hiring as they did in 2012.

“There is still a lot of uncertainty in the economy,” Daco said. “Businesses are not yet in the full-confidence mode.”

Mark Zandi, an economist at Moody’s Analytics, said the tax hikes and spending cuts would take about one percentage point from what growth could have been if the tax rates and spending plans had remained in place in 2012.

“The result is that the US economy will grow just over two percent in 2013, about the same as in 2012.”

He predicted that the plan would hurt job creation “with 700,000 fewer net new jobs created and an unemployment rate about half a percentage point higher than it would have been if last year’s policy had simply been extended.”

Meanwhile, the International Monetary Fund (IMF) criticized the ‘cliff’ deal on Wednesday, saying it was too limited to deal with the financial problems of the United States.

“More remains to be done to put US public finances back on a sustainable path without harming the still fragile recovery,” said IMF spokesman Gerry Rice.

“It is crucial to raise the debt ceiling expeditiously and remove remaining uncertainties about the spending sequester and expiring appropriation bills.”