Tags: Moody | Zandi | Chance | Recession

Moody’s Zandi: Chance of Recession Stands at 40 Percent

Thursday, 20 Oct 2011 07:48 AM

The U.S. economy stands a 40 percent chance of falling into a new recession within a year if Congress doesn't pass a White House-sponsored jobs bill, says Mark Zandi, chief economist at Moody's Analytics.

The bill, put forth by President Barack Obama, is a $447 billion package designed to create jobs via payroll tax cuts and investments in projects like infrastructure.

Some Republicans says the bill will make government bigger, although Zandi disagrees.
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"I don’t buy the argument that it makes government bigger. All of the proposals are temporary. All of the temporary proposals are being paid for. So it’s not adding to the deficit, or the debt, or to the size of government," Zandi tells Slate, an online publication.

obama200getty.jpg
President Barack Obama
(Getty Images photo)
"But if you go into recession, then yeah, the deficit will be a lot larger, and government measured by spending will be bigger."

If anything merits attention in the bill, it's the call for payroll tax cuts.

"The extension and expansion of the payroll tax holidays for workers would be number one on my list and key to avoiding recession," Zandi says.

The bill has faced opposition in Congress, although Zandi says he's counting on growing Republican support for items outline in the bill.

"I’m counting on it. If I thought they wouldn’t, then I would say that I think we’re rolling into a recession. I expect them to do it," Zandi says.

Some small business leaders, however, says President Obama's Jobs Act doesn't go far enough.

The International Franchise Association (IFA), a lobby group for Dunkin Donuts, McDonald’s and Starbucks, describes the bill as "a piecemeal, one-off approach to tax reform."

In a letter to the Senate, the IFA says broader tax reform as opposed to temporary breaks in payroll taxes will lead to more lasting cuts to unemployment rates, which remain high at 9.1 percent.

IFA Chief Executive Steven Caldeira says instead of a payroll tax cut, "tax reform that provides certainty for America's 825,000 franchise small businesses is the best way for Congress to help small businesses create jobs now," according to Fox Business.

"It is clear that short-term, temporary band-aid approaches to tax reform do not help stimulate job growth by small businesses, which are responsible for creating 64 percent of new jobs," Caldeira says in the letter, Fox Business adds.

"Franchise small business owners do not base decisions about hiring new employees for the long-term with a short-term extension of tax cuts for one or two years. What will allow franchise businesses to hire, grow and expand are permanent changes to the tax code for both individuals and corporations, especially with many of our country's small businesses filing taxes as individuals."

Payroll taxes aren't the only issues small businesses are facing, the IFA adds.

"Franchise small businesses also face the prospect of the higher tax rates after 2012 when individual tax rates could be as high as 39.6 percent," once the extension of the Bush tax cuts expire, as well as more tax hikes in 2013 when the president's health reform bill kicks in.

Some economists, meanwhile, don't see much added value payroll tax cuts will have on the economy.

Similar measures in the recent past gave consumers just enough more money to pay for rising gasoline prices.

That won't give the economy the shot in the arm it needs.

"Beyond allowing folks to spend more money on food and gasoline, spending is not apparent anywhere else in the economy," says Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina, according to Bloomberg.

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The U.S. economy stands a 40 percent chance of falling into a new recession within a year if Congress doesn't pass a White House-sponsored jobs bill, says Mark Zandi, chief economist at Moody's Analytics. The bill, put forth by President Barack Obama, is a $447 billion...
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Thursday, 20 Oct 2011 07:48 AM
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