CBO's case against 'Obama's middle-class tax cuts'
Alert readers will have noticed something odd in the CBO's graph of the harm that different tax cut policies will do to the economy. On the one hand, the harm comes from increasing the amount that we borrow. On the other hand, the extension of all tax cuts -- as opposed to those just for income under $250,000 -- actually does less damage to the economy, at least under one scenario.
People can -- and will -- take issue with the CBO's model here. For instance, it holds demand-side effects constant, so the fact that lower-income folks spend while higher-income folks save isn't included. CBO says those effects tend to disappear over time. But the bottom line is that both the full and partial indefinite extension of the Bush tax cuts are bad ideas that hurt the economy (the table atop this post shows the CBO's various estimates in detail). And though the Obama administration's proposal to extend the tax cuts for income under $250,000 seemed slightly less irresponsible than the Republicans' proposal to extend all the cuts, it's also worse at generating growth.
The takeaway? Both plans are fundamentally irresponsible. The tax cuts need to be canceled. If not now, due to the temporary weakness in the economy, then three years from now.
Josh Barro has some further thoughts worth reading.
| September 28, 2010; 4:41 PM ET
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