Bernard Baumohl, chief global economist for the Economic Outlook Group, thinks the lack of finality in the budget fight is slowing an otherwise fundamentally sound economy.
"What a shame," Baumohl said in a research note Wednesday. "Companies are eager to ramp up capital investments and boost hiring. Households are prepared to unleash five years of pent-up demand."
The economy might be growing at a 3 percent annual rate if not for the threat of sudden and severe spending cuts and tax increases, along with the haziness surrounding the budget standoff, says Ethan Harris, co-director of global economics at Bank of America Merrill Lynch.
Still, Congress' deal delivered a walloping tax hike for most workers: the end of a two-year Social Security tax cut. The tax is rising back up to 6.2 percent from 4.2 percent. The increase will cost someone making $50,000 about $1,000 a year and a household with two high-paid workers up to $4,500.Mark Zandi, chief economist at Moody's Analytics, calculates that the higher Social Security tax will slow growth by 0.6 percentage point in 2013. The other tax increases â¿¿ including higher taxes on household incomes above $450,000 a year â¿¿ will slice just 0.15 percentage point from growth, Zandi says. Congress' deal also postpones decisions on spending cuts for military and domestic programs, including Medicare and Social Security. In doing so, it sets up a much bigger showdown over raising the government's borrowing limit. Republicans will likely demand deep spending cuts as the price of raising the debt limit. A similar standoff in 2011 brought the government to the brink of default and led Standard & Poor's to yank its top AAA rating on long-term U.S. debt. Here's how key parts of the economy are shaping up for 2013: â¿¿ JOBS With further fights looming over taxes and spending, many companies aren't likely to step up hiring. Congress and the White House will likely start battling over raising the $16.4 trillion debt limit in February.
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