Should all the Bush tax cuts be extended?

The Bush tax cuts are set to expire this year.

G. Fabiano/Sipa Press/Newscom
Surrounded by Republican lawmakers, President Bush signed the Tax Increase Prevention And Reconciliation Act of 2005, extending his 2003 tax cuts on dividends and capital gains. Unless Congress acts, the Bush tax cuts are set to expire at the end of this year.

No: Tax relief for the wealthy is bad stimulus

The Bush tax cuts, which cost $1.7 trillion between 2001 and 2008, are set to expire at year’s end, posing several critical questions: Which tax cuts should be extended and for whom? Will permanent cuts boost the economy?

Due to the sluggish economy, letting all the cuts expire this year would be a mistake. President Obama wants to keep reductions for those who would most benefit – families making less than $250,000 annually. This would cost $629 billion less than the 10-year price of extending all the Bush cuts, while still providing tax relief to roughly 95 percent of the population.

Extending tax cuts for the rich is highly inefficient. Both economic theory and countless studies suggest that the wealthy are likely to save most, if not all, of a tax cut. When tax cuts increase the disposable income of lower-income earners, however, those people quickly spend it – on everything from rent to groceries and automobiles. This spending helps businesses thrive, strengthening our recovery.

Tax cuts do not pay for themselves, and revenue – stretched far too thin these days – should not be sacrificed for those who can most afford to pay. That $629 billion should instead be put toward investments that can strongly stimulate the economy. According to Moody’s Analytics, each dollar spent on infrastructure generates $1.57 in economic activity, and each dollar in general aid to state governments (to help prevent, for example, teacher layoffs) generates $1.41. Such spending would also create thousands of jobs. A dollar of income-tax cuts, however, generates only 32 cents. Tax cuts for the wealthy are costly, and simply not an effective way to grow the economy.

Rebecca Thiess, federal budget policy analyst, Economic Policy Institute

Yes: A tax hike would make the economy worse

Unemployment rests stubbornly near 10 percent. The unemployed are often without work for record lengths of time. Economic growth is slowing and may stop completely. Raising taxes on anyone now would make a bad situation worse. Yet that is exactly what President Obama proposes.

Mr. Obama’s tax-hike plan raises marginal income-tax rates on top earners and small businesses that employ the most workers. He also proposes raising the rates on dividends and capital gains. Raising these taxes would profoundly depress the economy because it would decrease the incentives for businesses to hire new
workers and for individuals to work and invest more. These are the basic necessities for growth and they are largely absent from the economy today.

Higher taxes are not needed to close the deficit. Overspending has caused the projected record shortfalls, not a lack of revenue. When Congress reverses its historic spending binge, the deficit will shrink without raising taxes a dime.

Congress should keep tax rates where they have been for a decade now by making the 2001 and 2003 tax relief permanent for everyone. Preventing a tax hike will keep more Americans working and stop an antistimulus from slamming the already staggering economy.

Curtis S. Dubay, senior analyst in tax policy, The Heritage Foundation

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