Economists: Higher Taxes Could Harm Economic Recovery

Jane Van Ryan
Posted September 28, 2010

The pace of the economic recovery is the slowest in the past 50 years, and if the government raises taxes, the economy "could fall off a ledge." Those were the statements of three economists who briefed reporters on the economic recovery today at API. They included (left to right) Dave Crowe of the National Association of Home Builders (NAHB), John Felmy of API and David Huether of the National Association of Manufacturers (NAM). Each represents an essential economic sector.

NAHB's Dave Crowe said, "Part of the reason the economy isn't growing is because housing isn't growing." Despite lower housing prices and mortgage interest rates, consumers aren't buying new homes due to low consumer confidence. Crowe added that the supply of new homes is at a 42-year low, with only 400,000 new units available. When the economy picks up, he said it might be difficult for builders to meet the housing demand because banks are reluctant to make real estate loans.

David Huether of NAM predicted that the "economy will be stuck in low gear for the second half of this year," citing low consumer confidence and uncertainty over government policies. Although U.S. exports are up and 145,000 jobs were created largely in the first four months of 2010, economic growth is "lackluster." Huether also cautioned that since manufacturers compete globally, "The last thing the government should do is add costs, raise taxes."

API's John Felmy also warned about government actions. "Policies are being proposed that drain money from the industry," he said, referring to the administration's plan to increase taxes on the oil and natural gas industry by $80 billion. John also said the failure to pass tax cut extensions could have a negative impact on small oil producers whose wells produce 2 barrels a day or less and provide jobs for about 125,000 workers. He said higher taxes, as well as the de facto offshore moratorium, could adversely impact domestic oil and natural gas supplies, energy security and job creation.

"Every dollar you send abroad is a dollar you can't spend here," Felmy explained.

The United States "needs economic expansion to start at a faster pace to create jobs," Huether said, noting that adding taxes now would be "bad timing."

If taxes go up, Crowe said, the economy "could fall off a ledge." Congress is not expected to take action on the Bush-era tax cut extensions before the November election.

Today's economic briefing was the second in an API series featuring chief economists from various sectors. Information about the first briefing is available here.

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Update on September 30, 2010: In the video below, watch NAM Chief Economist Dave Huether discuss how higher taxes could harm manufacturers, U.S. businesses across the board and U.S. competitiveness abroad.