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More Non-Partisan Common Sense on Taxes

A new report from the non-partisan Congressional Research Service (CRS) explains that permanently extending all of President Bush’s tax cuts would be extraordinarily expensive — CRS estimates the cost at $5 trillion over the next decade alone.  The report recognizes that Congress, in deciding the future of the tax cuts, will need to consider the current weak economy as well as our unsustainable long-term budget path.  But, it concludes, letting the Bush tax cuts aimed at the nation’s wealthiest 2 percent of households expire on schedule at the end of December makes sense from both perspectives.  Here are the key quotes:

[A]llowing 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.

Increasing tax rates for the richest 2% of taxpayers (by allowing the high income tax cuts to expire) will likely neither significantly decrease consumer expenditures nor adversely affect small business and job growth.

In January, a report from the non-partisan Congressional Budget Office (CBO) found that extending the high-end Bush tax cuts would provide less bang-for-the-buck, in terms of job creation and economic growth, than any other option CBO analyzed.  For example, extending President Obama’s Making Work Pay tax credit, which benefits more than 90 percent of working Americans but is also scheduled to expire in December, would generate two to three times as much growth and jobs as extending the high-end tax cuts, CBO found.

These two reports underscore a basic economic principle:  tax cuts have the biggest impact when they focus on people who live paycheck-to-paycheck — like working middle-class families — since they’ll generally spend their tax cuts rather than save them.  Let’s hope policymakers read both of these reports as the debate over the tax cuts intensifies.

Chuck Marr
Vice President for Federal Tax Policy