Expert: Taxes may threaten new economy

By {screen_name}
Tuesday, May 1, 2012

The economy in the Grand Valley and nationwide has bottomed out and is slowly rebounding thanks to boosts in consumer spending, housing sales and employment, but a “fiscal cliff” looms at the end of the year that threatens to wipe out those gains, according to a economist with Wells Fargo Bank.

“It’s a two-step-forward, one-step-back recovery we’ve been in for the last few years, and that’s continuing this year,” Wells Fargo senior economist Scott Anderson told The Daily Sentinel in an interview Tuesday.

Anderson, who will give his economic forecast for the U.S., Colorado and Grand Junction during a breakfast at Colorado Mesa University this morning, said just as spring is in full bloom, there are sprouts of economic expansion.

He expects the country’s gross domestic product to bump up 2 percent this year. Consumer spending was up 2.9 percent in the first quarter of the year compared with the same period last year, although a growing gap between the growth rate of spending and the growth rate of income leads him to believe consumers will have to take a breather. Buyers are dipping into their savings and taking on debt, he said.

The national housing market is improving, with sales expected to rise 11 percent this year. Signs of distress remain, however, as 13 percent of all mortgage holders — about 5 million households — are not making their payments, according to Anderson.

Predictions in some circles of $5-per-gallon gas hammering motorists’ pocketbooks this summer won’t come true, Anderson said, mostly because weakened global demand for oil has allowed inventories to build up. But oil prices remain above $80 a barrel, and he doesn’t see it dropping below $80.

Here in western Colorado, which entered the recession later than most of the rest of the country, the economy is making a “pretty strong, broad-based recovery,” Anderson said, noting a steep drop tends to produce a bigger bounce-back.

Employment in Grand Junction is up 2.5 percent over last year at this time, and for the year he expects it to be up 1.8 percent over last year, exceeding his forecast of no more than 1.5 percent employment growth nationally. Mesa County’s unemployment rate, which stood at 9.5 percent in March, will drop below 8 percent this year, Anderson predicted.

Yet, according to Anderson, a dark cloud threatens those positive signs: an “unprecedented” number of tax increases and federal spending cuts.

The scheduled ending of a pair of Bush-era tax cuts and a 2 percent payroll tax reduction in 2013, coupled with the advent of billions of dollars in spending cuts, “could throw the economy back into recession,” he said.

Anderson said it’s unclear at this point whether Congress will allow those tax cuts to expire. He believes the country needs to ease into any tax increases and federal spending cuts.

Otherwise, he said, “The shock would be enough to have consumers shut down again.”