Tax uncertainty

Tax uncertainty is the term for the economic risk that results when future taxes and tax rates are undetermined. Similar to policy uncertainty, tax uncertainty can impact both individuals and businesses[1][2] and has been shown in some studies to slow rates of economic growth.[3]

In the United States

Temporary tax measures adopted in the 2000s, commonly referred to as Bush tax cuts, though extended in 2011, were scheduled to expire at the end of 2012.[1] The uncertainty surrounding changes to tax rates, as well as the availability of certain tax deductions and credits, led to many businesses holding off on hiring and reducing spending.[2][4] Honeywell CEO David Cote cited tax uncertainty as the reason why Honeywell has replaced only one quarter of departing employees in 2012 saying, "The last thing you want is to hire a lot of people and then have to lay them off."[5]

According to a report published by the Stanford Institute for Economic Policy Research financial and tax uncertainty played a significant role in the slow recovery of the U.S. economy because uncertainty had led to a more cautious approach to investments and hiring.[6] In November 2012 the analysis firm Macroeconomic Advisers predicted that, in the absence of a resolution, unemployment would rise to 8.5 percent and the U.S. economy would grow only 1.1 percent in 2013.[4]

References
  1. Sandra Block (March 23, 2012). "Many find it hard to plan ahead as tax uncertainty looms". USA Today. Retrieved November 30, 2012.
  2. Joyce M. Rosenberg (November 6, 2012). "Tax-rate uncertainty leaves small business owners in quandary". Philly.com. Retrieved November 30, 2012.
  3. Easterly, William; King, Robert; Levine, Ross; Rebelo, Sergio (1991). How do National Policies Affect Long-Run Growth?. Country Economics Department, The World Bank. p. 21.
  4. Nelson D. Schwartz (November 29, 2012). "U.S. Growth Revised Up, but Year-End Slowdown Is Feared". The New York Times. Retrieved November 30, 2012.
  5. Richard Wolf; Tim Mullaney; Susan Davis (November 14, 2012). "The fiscal cliff: Will Obama, Congress cut budget deal?". USAToday. Retrieved December 3, 2012.
  6. Scott R. Baker; Nicholas Bloom; Steven J. Davis (March 2012). "Is Policy Uncertainty Delaying the Recovery?" (PDF). SIEPR Policy Brief. Retrieved 30 November 2012.
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