BofA’s (BAC) chief North American economist Ethan Harris said in a note to clients this morning that the U.S. economy would suffer a 1.3% hit to GDP if the Bush tax cuts were allowed to expire as scheduled at the end of this fiscal year.
Democrats and Republicans have been bitterly fighting over the future of the Bush tax cuts. The Democrats want to see an end to the tax cuts for the wealthy, while Republicans want them extended.
Telegraph: “We don’t find either view compelling,” Mr Harris said. “The longer this game of chicken goes on, the bigger the risk of an economic accident.
The most pressing concern to us is that absent new legislation, all of the Bush tax cuts expire at the end of this year. We estimate that would represent a 2 percent hit to household income. If such an increase were not reversed, we believe it could trigger a double-dip recession,” Harris wrote.
Harris says he sees a 55% probability of a compromise between the two political parities after the mid-term election and a 35% chance of gridlock without any compromise.