Growth Impact from Yesterday’s Deal

Karim writes:

The straight Keynsian impact (i.e., assume multiplier of 1) of the measures announced yesterday work out to a 1.25% drag on GDP, mostly felt in the first few months of the year. This reflects the payroll tax rise (about 0.7%), the rise in taxes and tighter rules on deductions for higher incomes (about 0.4%) and Obamacare fees (about .05%).

What remains unknown and could remain a drag just based on uncertainty effects are the 2mth delay in deciding on sequestration cuts (which may or may not happen), and obviously the debt ceiling. Both of these deadlines are likely to occur within 2weeks of each other in late Feb/early March.

Uncertainty has been removed in making lower and middle income tax rates permanent as well as the permanent patch for the AMT.

The current structure for unemployment benefits was extended by a year.

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