Congress Again Creates Confusion and Again Harms the Economy

Rea Hederman / September 28, 2010

The inability of Congress to stop the Obama tax hikes is already having a real, negative impact on the U.S. economy. Businesses are delaying hiring and investment decisions because they do not know what their tax liability will be next year. Even tax experts have noticed the incredible amount of confusion that now exists as Congress flees D.C. without preventing the tax hikes.

Tax Notes Today reports in “Uncertainty in Tax Code Is Extraordinary, Former Tax Official Note” (gated copy) that former Joint Tax Committee chief of staff Lindy Paull said, “We are entering a state of instability in the tax code. We have never seen such large numbers of expiring tax provisions as we are seeing today.” The jump in the death tax and capital gains and dividends tax rates will substantially raise the cost of investment for firms. Since businesses look ahead for planning purposes, this uncertainty will delay new investments and reduce the opportunity for job creation.

More generally, the broader array of tax hikes will slam the economy while it is already weak, putting off for many months, and possibly years any hope for a robust recovery. Businesses are looking to the economy’s horizon and see the tax hike threat and its implications. The only rational choice for most will be to put a freeze on all hiring and investment plans until economic conditions improve. (more…)