New Estimate for Cost of Extending Bush Tax Cuts
There are only 58 days until the Bush tax cuts of 2001expire. There has already been considerable debate about whether and for whom the tax cuts should be extended. Now that the election season is over, we can expect to hear a lot more about the pros and cons of extending portions of the tax cuts. There’s fairly widespread agreement that the tax cuts for the middle class will be extended, but it’s less clear what will happen to the tax cuts for the wealthy.
Proponents of extending the cuts for the wealthy argue that such cuts will help bolster the economy and create jobs, while opponents point to the impact the cuts for the wealthy will have on the deficit. A new report by the Congressional Research Service estimates that extending all the tax cuts will cost $5.0 trillion over the next ten years, much higher than the $2.8 trillion figure the Congressional Budget Office has been using. (The higher figure includes the cost of servicing the debt due to lost revenue, as well as indexing the alternative minimum tax to inflation).
The new CRS report acknowledges the need to find a balance between fostering economic recovery and insuring a sustainable fiscal footing for the federal government, and notes that “allowing the tax cuts targeted to high income taxpayers to expire as scheduled could help reduce budget deficits in the short-term without stifling the economic recovery.” This approach is in line with Obama’s proposal to extend the middle class tax cuts and letting the ones for the wealthy expire.
Many of the new candidates elected November 2nd are not likely to be sympathetic to Obama’s approach to tax cuts, and compromises may have to be made. David Leonhardt in the New York Times had some suggestions for how Congress could compromise on cutting taxes and reducing the deficit, including requiring offsets for extending the tax cuts for the wealthy, establishing a new top income tax bracket for the very wealthiest, and reducing tax expenditures.