WASHINGTON Feb 7 Failure to extend a
payroll tax cut and unemployment benefits would be a significant
drag on the U.S. economy, Moody's Analytics chief economist Mark
Zandi told Congress on Tuesday.
U.S. lawmakers from both parties are working on a deal to
extend emergency jobless benefits, and the payroll break for 160
million Americans beyond late February.
If they fail, the payroll tax, which funds the federal
Social Security retirement program, will revert to 6.2 percent
from 4.2 percent and leave workers with an average of about
$1,000 less in their wallets this year, and many without jobs
will be cut off from unemployment benefits.
"Not extending these programs would deliver a significant
blow to the still-tentative economy," Zandi told the
congressional Joint Economic Committee.
Zandi said not renewing the payroll holiday would cut
economic growth by 0.4 percentage point this year and not
extending emergency jobless benefits would hit growth by 0.3
Moody's now estimates real Gross Domestic Product growth at
2.6 percent in 2012, assuming the policies are extended.
Zandi, who has advised both Democrats and Republicans, also
said failure to act would raise the unemployment rate by at
least 0.3 percentage point in 2012. The jobless rate fell to a
near three-year low of 8.3 percent in January.
"The recovery could easily be derailed," he said.
Democrats and President Barack Obama have been pushing the
extensions, and most Republicans are eager to get the issues
behind them after a bruising battle at the end of last year,
where they were in the awkward position of arguing against tax
Disagreements over how to pay for the tax break hampered
lawmakers' efforts to extend it until the end of 2012.
Zandi also said the extension of the payroll tax cuts and
jobless benefits late last year helped prevent the United States
from veering back into a recession.
(Reporting By Kim Dixon; Editing by Eric Beech.