The extension of the Bush-era tax cuts in December should be a boost to the economy in 2011, according to David Mitchell, associate professor of economics and director of the bureau of economic research at Missouri State University.
“I think the extension is good in that it removes some uncertainty,” Mitchell said.
He said the 2 percent cut to Social Security taxes, seen as FICA on payroll checks, is one that will put more money in the average person’s pocket. He said for someone earning $100,000 per year, the drop to a 4.2 percent tax from 6.2 percent would give that worker an extra $2,000 in annual take-home pay.
“I expected the extension of the tax cuts to go forward at the marginal tax rates. The one on the Social Security, that took economists by surprise,” Mitchell said. “We weren’t expecting that. I think that has led a lot of people, myself included, to revise our forecasts upward.”
He said the tax breaks in the law should achieve the goal of creating economic growth in the short-term, but he thought the impermanent nature of the cuts would do little to create a long-term impact.
“In one respect, you could argue that it would have been better if they would have done less of a tax cut and made it more permanent,” Mitchell said.
A tax break that allows profitable companies to write off capital expenditures immediately, rather than over time, could be beneficial to industries such as heavy equipment manufacturing. Mitchell, however, said it likely would have little impact on the economy because it wasn’t creating an incentive for unplanned spending.
“All that’s going to do is incentivize businesses to front-load a bunch of investment that they probably would have done anyway,” he said.
The $858 billion worth of cuts extends many tax breaks through 2012, and others for only this year. An extension of unemployment benefits is included in the law, as is an extension of the earned income tax credit.
Mitchell will present his 2011 economic outlook report Feb. 8 during a forum by the Missouri Council on Economic Education and MSU’s Center for Economic Education.
The event, scheduled for 11:30 a.m.–1 p.m. at University Plaza Hotel, also will allow local business leaders to weigh in and offer their own projections. Scheduled panelists include Jack Stack, CEO of SRC Holdings Corp.; Jim Anderson, president and CEO of the Springfield Area Chamber of Commerce; John Twitty, general manager of City Utilities; and Sarah Steelman, former state treasurer.
Tickets cost $30 and are available at
www.moeconomics.org.
MCEE is a nonprofit organization founded in 1969 that promotes economic and financial education in schools.[[In-content Ad]]
