In a move reminiscent of Richard Nixon’s visit to China, conservative economist Martin Feldstein argued in today’s Wall Street Journal that the Bush tax cuts should be extended for a year or two, but not made permanent.
Although it is important to avoid increasing the current tax rates until the recovery is well established, the enormous budget deficits that are now projected for the rest of the decade must not be allowed to persist. …
It would be wrong therefore to commit to the permanent reduction in tax rates for all taxpayers below the top brackets that is called for in the Obama budget. Changing the Obama budget proposal to limit all tax cuts to two years would reduce the total deficits over the next decade by more than $2 trillion. No single policy change could do as much to limit the future deficits and the national debt.
Feldstein, a distinguished Harvard economics professor and former top economic advisor to Ronald Reagan, has made a career of expounding the merits of lower tax rates. His research suggests that high tax rates entail huge economic costs, so today’s essay must have been difficult to pen. But he believes that the cost of unbridled debt would be even greater and that the debt explosion is unlikely to be tamed by spending cuts alone.
There’s always the risk that Feldstein’s support for a temporary extension is simply a pretense for keeping the high-end tax cuts in the law until a more conservative Congress is in place, but his proposal is good policy. It makes sense not to increase taxes during a recession, but it makes no sense to commit to a permanently inadequate tax base.
Extending the Bush tax cuts for two years would provide time for a reexamination of the tax code before 2012. Congress should use this additional time to overhaul the tax system so that it is simpler, fairer, and able to raise enough revenue to finance the government. With luck President Obama’s budget commission will recommend a tax reform plan based on that starting point.
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