Analysis reveals that if the Bush Tax Cut Expire like expected on January 1 the recovery will crash. The report by Deutsche Bank says gross domestic product would hover around 1.5% with the potential to hover around 1.1% for 2011.
The report goes on to say if the Alternate Minimum Tax is not corrected it would makes the situation worse.
“In a worst-case scenario, allowing the Bush tax cuts to expire and failing to fix the AMT could result in (1.5 percent) of fiscal drag in 2011 on top of the 1 percent fiscal drag we expect to occur as the Obama fiscal stimulus package unwinds,” Deutsche said in a note to clients. “If the recovery remains soft/tentative through early next year, this additional drag could be enough to push the economy to a stalling point.”
Report runs counter to the remarks by Treasury Secretary Timothy J. Geithner who believes that the US would not fall into recession if the tax cuts expire. The White House will let other tax cuts for the middle class remain.
Deutsche Bank says because of the sky-high deficits and the end tax cuts for incomes of $200,000 the US may fall into a Japanese “lost decade” which Land of the Rising Sun was in economic turmoil during the 1990’s.
“As soon as the economic recovery does look reasonably well entrenched, indeed, preferably even sooner, plans will need to be made to begin to put the US fiscal position on a more sustainable course,” Deutsche said.
“As we have noted, this is not going to be an easy process politically, and it may well take a significant negative event in financial markets to steer the US political system to do what needs to be done.”