Make the Bush Tax Cuts Permanent
When debate about government stimulus packages began in 2008, the mantra in Washington was that they should be temporary, targeted, and timely. I argued to the contrary in the Wall Street Journal and Congressional testimony that to stimulate the economy any package should be permanent, predictable, and pervasive. I advised Congress to commit to not repealing the Bush tax cuts, thereby making those tax cuts effectively permanent, adding predictability to an otherwise uncertain environment, and creating a pervasive economic boost, because the Bush tax cuts applied to all income tax payers.
Unfortunately the Washington mantra won the day and we can now see what happened: If there have been any effects of these so-called stimulus packages, they have been temporary. They certainly did not get the economy moving again. Instead an incipient private sector led recovery at the end of last year has stalled with economic growth now falling to only 2 percent and unemployment stuck at over 9 percent. Uncertainties about what tax rates will be in the future, as well about thousands of pages of new legislation in health care and finance, are holding business firms back from hiring.
As the January 1 date for tax rate increases comes closer, we are beginning to hear the same old Washington mantra. For example, Mark Zandi recently argued in last week’s New York Times that the weak economy means that we should temporarily delay for one year the repeal of the Bush tax cuts. While put forth as a compromise, it should be obvious now that a temporary change like this will not help the economy by much. Businesses and consumers look ahead at least for one year. If they worry that their tax rates will rise in 2012 rather than 2011, they will be as reluctant to hire and spend as they are now. A far more effective and more lasting economic stimulus would be for the Congress and the Administration to agree to a simple one-page bill—one sentence could do it—saying that “the tax cuts passed in 2001 and 2003 will remain in place” with no end-date specified.
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Jun '10
Re: Make the Bush Tax Cuts Permanent
I'd assume that Congress has all kinds of evidence by now, that cutting taxes fuels growth and actually brings in more total revenue than raising taxes. Better to get a smaller percentage of a much bigger pie, and all that. Can't anyone on the left do math, or read economic history? Or, is revenue not a important measure for them? The Laffer curve works (especially when combined with predictability,) but they don't want to hear about it.