Steve Forbes: Raising Taxes Equivalent to Harming the ‘Patient’

Tuesday, 11 Dec 2012 11:17 AM

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Any solution that avoids the fiscal cliff via tax hikes will hurt the economy similar to medical procedures that end up harming the patient, said publisher and one-time presidential candidate Steve Forbes.

The White House and Congressional Republicans continue to negotiate ways to avoid the fiscal cliff, a combination of tax hikes and deep government spending cuts due to kick in simultaneously at the end of this year.

Failure to avoid the fiscal cliff could tip the U.S. economy into a recession next year.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

The White House has insisted it won’t accept any deal that does not raises taxes on top U.S. earners, a proposal some Republicans have suggested they’ll accept in exchange for meaningful spending cuts and entitlement reforms.

Republican lawmakers need to resist the temptation to agree to tax cuts now, Forbes said, as the economy can’t handle tax hikes.

“Right now the U.S. economy is wobbly, as are most economies in Europe and Japan,” Forbes told CNBC.

“For us to raise taxes now, especially on critical small businesses and capital creators, is just sheer foolishness. The timing couldn’t be worse.”

Reforming tax codes and cutting spending can narrow deficits and lead to growth at the same time.

“The best way to increase revenue is not to increase taxes, as we see in Italy and other places, it’s to make structural reforms to enable the economy to move again,” Forbes said.

“Don’t harm the patient. To do something short term that harms the economy is worse than doing nothing.”

Fears surrounding the fiscal cliff are already dampening recovery and markets.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to a seasonally adjusted 74.5 for December, well below 82.7 in November and below market forecasts for a reading of 82.4.

Consumer spending drives about 70 percent of the U.S. economy.

“As you know the number is very disappointing, it reversed all the gains of the last few months. We’re now well below 80 again, not a good sign. It may be a sign that the average American is at least implicitly seeing the worries of the fiscal cliff so the only good thing from the number is, it might persuade our friends in the Beltway to get in gear,” said Carey Leahey, chief U.S. economist at Decision Economics in New York, according to Reuters.

“The market is going to act as if it is, and take this as the first tangible sign that the cliff is affecting household attitudes.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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