Higher Taxes Unlikely to Hurt Recovery --- Economists See Minor Impact on Consumer Spending
Just how much will the Clinton tax increase on the most well-off Americans hurt the economic recovery?</br></br>Although the tax rise will take some zest out of consumer spending, mainstream economists say it poses no serious threat to the recovery. They say that unlike former President Bush's tax increases, which hit a slowing economy, President Clinton's tax rise comes during an expansion. The added taxes on the wealthy, they say, will damp things, but at a time when the economy can absorb the setback.</br></br>A dissenting view comes from supply-side economists, who argue the tax on the rich will lead to lower investment and productivity, trends that, over time, would make the U.S. less competitive.</br></br>The tax rise didn't pass Congress until August, but the income-tax increases are retroactive to Jan. 1, 1993; the increases apply to couples with taxable income over $140,000, after deductions, and individuals with income over $115,000. Taking account of all the income and other tax increases, the Congressional Budget Office estimates that families making more than $200,000 annually will be socked with an average of 17.4% more in taxes, or $24,000. The fear is that when wealthy people sit down to do their taxes next year, they will be shocked to find out how much they owe and suddenly stop spending -- hurting a recovery that's finally gaining momentum.</br></br>"The April tax payment date may have a shock effect," warns Kurt Karl, chief economist for WEFA Group in suburban Philadelphia. Manhattan and Beverly Hills are two areas where a large group of taxpayers will be hit.