Economist urges Obama: Don't raise taxes now

A prominent economist who advised John McCain in 2008 but now does the same for Democrats says President Obama shouldn't raise anyone's taxes just yet.

Moody's Economy.com founder Mark Zandi told reporters this morning that White House plans to let the 2001 tax cuts on high-earners expire in January would be bad karma for a fragile economy and increase the chances of a double-dip recession.

"I think it's a gamble to raise taxes on upper-income households in 2011," Zandi said. "I would advocate not raising anyone's taxes."

Obama has long advocated extending only the middle-class tax cuts pushed through Congress by his predecessor, George W. Bush. He wants to let taxes return to 1990s levels on couples earning above $250,000.

Republicans, led by would-be House speaker John Boehner, vehemently oppose that, and Obama may have trouble convincing many moderate and politically vulnerable Democrats of its wisdom. Zandi suggested they split the baby by eliminating tax cuts on the wealthy in 2012 or later.

The debate will fill the airwaves in September and October, but action on taxes may not happen until after the November elections, in a lame-duck session of Congress.

Zandi was pessimistic about the economy in the short term, predicting 10% or higher unemployment as the election nears. He said a decision on tax policy and passage of Obama's small business jobs bill would help a little, but not much.

"In the next six months, I don't think there's much that can be done," he said, citing business uncertainty that has led to a lack of investment and new jobs. "The collective psyche is incredibly fragile ... business confidence is also very shaky."

Longer-term, however, Zandi is bullish. He said the economy should recover, with only a one-in-three chance of a double-dip recession. He predicted huge growth in auto sales by 2012 and said housing should follow.

Jobs will take longer. The 8 million jobs lost in the recession should return in five years, Zandi said, with the help of increased exports -- particularly in services such as accounting, consulting, engineering, law and finance.

"There's a boatload of jobs there, and they're the right kind of jobs," he said. "I'm much more optimistic about the economy after we get through the next 12 months."

(Posted by Richard Wolf)