Ending Bush Tax Cuts Will Hurt Economy: Goldman Analyst
Extending the Bush tax cuts for all income levels beyond year-end would add a "couple tenths" to US economic growth, while allowing the tax cuts to expire would result in "well over a percentage point" hit, Jan Hatzius, chief U.S. economist at Goldman Sachs told CNBC.
"If everything was allowed to expire, as is the current legislation at the end of this year, that would be a major impact," Hatzius said.
Both scenarios are conceivable, although Goldman's expects the administration's view will prevail, so tax cuts for lower- and middle-income taxpayers are extended, while tax cuts for those with higher incomes expire.
Hatzius believes the U.S. economy is in a soft patch, marked by sluggish demand, and that risks to the economy are to the downside.
"We are still in a very, very gradual final demand recovery," Hatzius said. "Final demand has only been up a little more than 1 percent over the last year." And that's with fiscal stimulus, he added.
Still, Hatzius said a double-dip recession is only 25 percent to 30 percent likely.
"I think the significantly more likely outcome is no recession and a very moderate, gradual, sluggish recovery," he said.
Hatzius also said the Federal Reserve is likely to do more quantitative easing, either later this year or early next year, as the unemployment rate drifts higher. Goldman forecasts the unemployment rate will rise above 10 percent.