Recession is coming. That’s the cheery news emanating from the green eyeshades at the Congressional Budget Office (CBO). The nonpartisan economists last month issued a report outlining the likely outcomes given a set of probable scenarios. The way things are shaping up, 2013 won’t be a happy year.
Consumer confidence and small-business confidence are still in the dumps. The public is rightly skittish, uncertain about what Congress and the president will do — or not do — to avoid the massive tax hikes scheduled to take effect on Tuesday. It will be a nasty surprise if another 30 million families making as little as $75,000 per year find themselves swept into paying the alternative minimum tax (AMT), a pernicious levy originally sold as a “wealth tax.” Large families living in high-cost, high-tax states will lose exemptions for children and state taxes by falling into the AMT’s grasp. Internal Revenue Service computers aren’t expected to keep up with the tax-code chaos this will cause, likely delaying tax refunds for millions of filers.
Fear of this outcome sent consumer confidence plunging to its lowest level in five months, as measured separately by the Conference Board and by the University of Michigan. The Conference Board index dropped more than six points from its November level to barely above 65 in December, and the University of Michigan reflected an equivalent drop. Unsurprisingly, unhappy consumers kept their cash in their wallets over the holiday season. Retail sales were up less than 1 percent, falling far short of the optimistic predictions that said we would see 3 percent to 4 percent gains over last year.
Forget about 2013 being the year for a job-market recovery. New unemployment claims came in at 350,000 this month, and small businesses aren’t in a hiring mood. The National Federation of Independent Business index is at the lowest level in 21/2 years. Entrepreneurs have little reason to be hopeful, as many of them will fall victim to AMT along with the higher taxes they’ll pay if President Obama gets his way in raising taxes on families making more than $250,000. The scorekeepers at CBO predict the increase in small-business taxes could result in the loss of 200,000 jobs.
No matter what political deals are struck, the best we can hope for in 2013 is stagnation. Neither Congress nor Mr. Obama has demonstrated any serious effort to restrain spending. Regardless of tax rates, Uncle Sam typically has managed to take in about 18 percent of the gross domestic product (GDP) in taxes, but spending has rocketed to 23 percent of GDP. Ever-expanding entitlement programs are on track to push that figure higher.
The only hope for the year ahead is that Congress and the president come to their senses and stop borrowing $1 trillion every year to fund a government that has grown far too large. The country cannot return to a path of sustained growth until the government stops crowding out productive private investment.
Nita Ghei is a contributing Opinion writer for The Washington Times.