The Washington Post

Financial analyst: Consequences of failure to extend payroll tax cut would be dire

What if a top analyst at a major financial firm predicted that failure to pass the payroll tax cut extension would lead to a big drop in that firm’s growth forecast? Would that impact the debate at all?

That’s exactly what happened yesterday, and Dems are about to pounce on it in a big way to boost to their argument in favor of passing the extension.

Michael Pond, the co-head of interest rate strategy at Barclays Plc, went on Bloomberg TV yesterday and made a striking claim: If Congress doesn’t extend the payroll tax cut, it could lead Barclay’s to drop its growth forecast by 1.5 % for the first quarter of next year:

Here’s what Pond said:

POND: Well, one of the things that we’re watching is the payroll tax extension and the signals that we’re getting from Washington as to whether we get that extension. Because if we don’t, our growth forecast frankly will probably be dropped down from about 2.5 percent in Q1 down to around 1 percent. It’s that big.

QUESTIONER: Whoa. Say that again. That big a number?

POND: It could have that big of an impact if we don’t get the payroll tax extension. The unemployment benefit extension is also important, but it’s the payroll tax extension that’s worth around $250 billion to the economy.

The two parties are at a standoff over whether to pass the extension, which is set for a Senate vote this week. Republicans object to the fact that it would be paid for by a surtax on income over $1 million, and some also say they’re skeptical of its stimulative impact. They’ve also argued against a temporary solution, with Mitt Romney in particular dismissing it as a “little Band-Aid.”

Of course, here is one of those cases where we can try to gauge who’s right by checking in with outside experts. And this expert, in particular, seems to think applying this little Band-Aid is rather important, and that the consequences of failing to apply it would be pretty severe.

Greg Sargent writes The Plum Line blog, a reported opinion blog with a liberal slant -- what you might call “opinionated reporting” from the left.

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