“They will do some kind of fiscal solution, but it won’t happen before Jan. 1. They will take six to nine months to do some fiscal reform,” Dhawan, director of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business in downtown Atlanta, said during Wednesday’s quarterly Economic Forecasting Conference on campus.
Unlike the previous three years, when each American family got average payroll tax cuts of about $1,000, he said there won’t be any this Christmas.
“Santa Claus comes every year, so why don’t I get my gift this year?” Dhawan said. “I wrote [these predictions in] my booklet before the election was over, on Election Day.”
As for the overall U.S. economy, Dhawan estimates the gross domestic product will rise only 0.9 percent in the fourth quarter of this year and only 1.0 percent during the first quarter of 2013 and a total of 1.5 percent next year. The country will create 115,000 jobs per month in 2013 and 160,000 the following year, he said. In Georgia, 55,300 jobs will be added in 2013 and 77,300 the following year, he added.
Regarding the fiscal cliff, Dhawan said the country is going over the precipice.
“It will take down investment spending by firms, wreck consumer mood and affect retail sales in the first quarter of 2013,” he said. “Then the Congress does its magic by retroactively doing changes in March, buys another six months to do the first down payment on reducing deficits by 2013 year-end.
“We tell Congress: ‘Get the goodies [pet projects]. Then control spending.’ If we get No. 1 but not No. 2, we’re OK with it. That’s the problem. We created this system.”
As for foreign markets and their effect on the U.S., Dhawan said, “Europe is in a funk.”
German Chancellor Angela Merkel is up for re-election in May, an event likely will affect the European economy, he said.
During a question-and-answer session following Dhawan’s speech, one audience member asked, “What happens if Congress takes care of the [debt] problem?”
Dhawan was skeptical it would happen. “We have only one more year until the European markets’ [problems] come to us,” he said.
Another guest asked, “How much is a little to quantify a debt down payment?”
“My person opinion is $200 billion,” Dhawan said, adding later he hopes Congress cuts spending instead of raising taxes, arguing it is better for the economy.
Regarding income tax breaks, Dhawan said during his speech, “Everything is in play — health insurance, your retirement savings and other issues.”
Then he asked the room of about 200 attendees, “How many of you are willing to give up one of those things?”
Three people raised their hands.
“Next year your taxes are going up one way or another,” Dhawan said. “The question is which way.”