Fiscal cliff deal may slow economy

Updated Jan. 1, 2013 at 11:16 PM
| License Photo

WASHINGTON, Jan. 1 (UPI) -- Ending the payroll tax break, effectively cutting take-home pay for all wage earners, is likely to slow the U.S. economy in 2013, economists say.

J.P. Morgan Chase estimated that ending the cut of 2 percentage points that has reduced the payroll tax to 4.2 percent for the past two years would remove a total of $125 billion in income from paychecks a year, The Wall Street Journal reported. Several economists told the newspaper that would slow growth by half a percentage point in an economy now growing by only 2 percent annually.

Lewis Alexander, a Nomura economist, said that passing a deal and averting the fiscal cliff would give the economy only a short-term boost.

"We continue to anticipate a significant economic slowdown at the start of the year in response to fiscal drag and a contentious fiscal debate," he said.

The deal would end uncertainty about significant increases in taxes on dividends for middle-class investors. But there are other sources of uncertainty, including another round of negotiations on the federal debt limit.

Related UPI Stories
Latest Headlines
Trending Stories
Philadelphia Community College on lockdown, reports of gunman
Boehner delays House vote for new speaker
NASA releases thousands of Apollo mission photos on Flickr
Snowden: U.S. won't respond to offers to serve prison time
FDA approves new treatment for advanced lung cancer