Friday, December 03, 2010

Renewal of Tax Cuts: What's at stake

How Congress' tax-cut decision may affect economy
On this, economists agree: Extending tax cuts passed under President George W. Bush for low- and middle-income people would strengthen the weak economy.

The question is what to do about the highest-paid 3 percent of taxpayers. Should Congress let their tax cuts expire at year's end as scheduled? Extend them for only a while? Or make them permanent?

It isn't just a debate over how much money high-income Americans should get to keep. It's about how much their tax cuts might aid the economy. And how much they'll affect the budget deficit years from now.

But first, consider what would happen next year if Congress let the tax cuts for everyone expire as scheduled. According to Moody's Analytics, the deficit would drop to $732 billion. That's well below the $1.3 trillion deficit for the budget year that ended Sept. 30.

At the same time, the economy would suffer, Moody's says: Growth would tail off to just 0.9 percent next year. That's scarcely more than a recessionary pace. And unemployment would average 10.7 percent next year.

That's because higher taxes would leave people with less money to spend. Businesses would be less inclined to hire. Economic growth would slide. Yet if Democrats and Republicans can't reach a deal during the post-election lame-duck session that began this month, taxes will rise across the board in January.

Republicans triumphant in the midterm elections insist that everyone, regardless of income, should continue to enjoy the tax cuts approved during George W. Bush's presidency. [...]

It goes on to give three options that could play out, and their probable consequences. It's a short but informative article, well worth the read.

Then there's this:

Thus Does the Economy Grow
[...] Here, then, are ten practical tips for elected Republican officials, who are torn between trying to govern as a majority party and trying to oppose President Obama’s agenda as a minority party.


Six. Don’t delink income-tax rates. The strategy we developed in 2001 and 2003 worked. Forced by reconciliation rules to sunset the tax cuts, we set them all to expire on the same day. President Bush reframed the top income-tax rates as small-business tax rates. This argument won the day in 2003 and 2010 and will win again as long as the expiration dates remain synchronized. Don’t fall for the trap of temporarily extending the top rates and permanently extending the others. This would guarantee future increases in the top rates.

Seven. Offer to help the president expand free trade and open investment. Rebuild the center-right free-trade coalition. The president will need to deliver a few Democrats to offset the protectionist Republicans (darn them). You can fight economic isolationism, raise American standards of living, help American allies in Latin America and Asia, cooperate with the president, and split congressional Democrats. That’s a five-part win.


Read all ten, they're good.

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