Bush tax cuts: Will the economy suffer if they expire?

Some Senate Democrats, including Kent Conrad of North Dakota, have come out against letting any of the tax cuts expire early in 2011, due to the fragile economy.

The House Republican leader, John Boehner of Ohio, has been tagging Obama's policy as a "job-killing tax hike on families and small businesses." In a statement this week, citing a study by Congress's Joint Committee on Taxation, he said that half of US small business income would face higher taxes if the top two tax brackets revert to pre-Bush levels.

Supporters of Obama's plan say that tax cuts for the affluent are a relatively ineffective for of economic stimulus, since those households are less likely to immediately spend the extra dollars they get to keep.

And, although the joint committee found that half of small-business income would be see higher tax rates, that doesn't mean the tax change would affect half of all small businesses. In fact, the report said only about 3 percent of all households that report business income would be affected.

Whatever the merits of both views, the question of tax cuts for the rich is unlikely to be an issue that tips the economy into a new recession. According to an analysis by Goldman Sachs, the income tax and capital-gains tax money at stake is only about $34 billion for 2011.

The debate isn't just about politics, however. How the tax policy debate gets resolved will have an effect on economic growth, and on the ability of the government to get its finances on track.

The Bush tax cuts for top income brackets, if extended for a decade, would total more than half a trillion dollars in lost federal revenue. The Bush cuts for lower income brackets total $1.6 trillion over that same decade, according to Goldman Sachs.

Related:

• Blog: Extending the Bush tax cuts and the myth of the thrifty rich
• GOP's jobs ideas: Keep Bush tax cuts, freeze regulations
• Blog: Should Congress extend the Bush tax cuts?

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