Jane Van Ryan
Posted August 16, 2010
Three economists briefed reporters at API this morning on economic uncertainty and its paralyzing impact on U.S. businesses and farms.
Chief Economist Dr. Martin Regalia of the U.S. Chamber of Commerce said businesses are holding about $1.8 trillion in cash, which is $600 billion more than usual. The reason: Many businesses believe it's too risky to invest money when so much is unknown about the economic and political climate.
"The uncertainty is palpable," Dr. Regalia said.
Key to the ongoing uncertainty is congressional inaction on the Bush administration tax cuts. They expire at the end of 2010, and if they are not extended, both large and small businesses will face sharply higher effective tax rates. As a result, many businesses are reluctant to expand or hire new workers.
Dr. Robert Young, chief economist at the American Farm Bureau Federation, said the expected increases in estate and capital gains taxes are having a similar impact on family farms. When added to new regulations covering dust, herbicides, climate change and waste disposal, he said farmers are experiencing "a very, very uncertain environment..."
Citing a study conducted by the Center for American Progress (CAP), API Chief Economist Dr. John Felmy said every $1 billion increase in oil and natural gas industry taxes destroys 5,000 jobs. The administration's 2011 proposed budget includes tax hikes of $80 billion on the industry, which translates into a loss of 400,000 jobs throughout the U.S. economy.
"If you take money away from the industry, it won't be invested in jobs or domestic energy production," John explained. Higher taxes also have a negative impact on shareholders who expect a return on their investment and businesses that supply equipment, materials and services to the oil and natural gas industry.
What should be done to reduce the uncertainty and improve the business climate? The economists agreed: Extend the tax cuts and avoid what could be a $4 trillion tax hike, the largest tax increase in U.S. history.
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