A top economic adviser to President Obama warns that failure to ratify the tax compromise forged with congressional Republicans could cause a double-dip recession.
Lawrence Summers, the chair of the National Economic Council and former Treasury Secretary, will leave his post later this month. The White House and most economic forecasters have suggested that it's unlikely for the economy to fall back into recession, but Summers' comments seemed to raise the stakes in the debate as the White House works hard to rally Democrats angered that tax rates for wealthier Americans will be allowed to continue for two more years under the accord.
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Summers warned today that if Congress fails to approve the tax deal the president struck with Republicans in the next two weeks, it "would materially increase the risk that the economy would stall out" and the country would suffer what he called "a double-dip" recession.
Stressing the point, he repeated that the failure to pass the package "would significantly increase the risk" to the economy.
Summers' comments came in a White House briefing along with senior adviser David Axelrod and press secretary Robert Gibbs.
Gibbs added, "We want to get this done quickly."
Summers stressed the fact that economists have revised their forecasts for jobs and the economy based on the deal reached by the president. Failure in Congress, he said, would force economists to project more joblessness and a weaker economy. "It is important to understand that if this process were to hypothetically break down," he said, not only would those upper revisions be reversed "but a set of downward revisions would commence." He added, "I don't think at the end of the day, the Congress will take a step that materially increases the risk that this economy would stall out."
Economic forecasters did say the fallout from a failure to pass a tax compromise of some sort would be substantial, though just how substantial remained unclear. PNC chief economist Stuart Hoffman said he didn't think a breakdown in tax talks alone would be sufficient to cause a double-dip, but in tandem with an outside shock from Europe, for instance, he said it could occur.
Hoffman added that fear of a technical recession aside, failure to strike a deal could kill hopes of a nascent job market recovery. "Call it a double-dip or just call it purgatory," he said. "A tax hike now would be a terrible way to usher in 2011."
Economist Zach Pandl of Nomura Securities went further, calling a second recession "extremely plausible" if the tax cuts failed. But Pandl added that he didn't find that outcome likely.
"From our seat, there are only two ways this will play out," he said. "One is they'll pass it with no problem. Or two, they won't pass it, the market is going to tank, and then they'll pass it -- sort of like with TARP."