Better Uses for Tax-Cut Dollars
http://www.offthechartsblog.org/better-uses-for-tax-cut-dollars/
Posted by: Chuck Marr
Posted in: 2001/2003 Tax Cuts, Businesses, Deficits and Projections, Federal Budget, Federal Tax, Individuals and Families, Taxes and the Economy
Former Federal Reserve vice chairman Alan Blinder makes an excellent suggestion in today’s Wall Street Journal: Congress should let the Bush tax cuts for people earning over $250,000 expire in December and use the savings to pay for jobless benefits and other programs that “put more spending into the economy than the tax hike takes out, thus creating jobs.”
As I explained in a recent report, a Congressional Budget Office analysis makes clear that extending the tax cuts for high-income households would be the least effective of all spending and tax options that CBO examined for boosting the weak economy and creating jobs. It comes in dead last.
Our report continued:
The CBO findings point the way toward sounder alternatives. Policymakers should allow the high-income tax cuts to expire on schedule and use the 2011 proceeds for policies that CBO has found would have a much higher “bang-for-the-buck” in creating jobs and strengthening economic growth, such as extending unemployment benefits and state fiscal relief, increasing infrastructure spending, and a jobs tax credit. Once the economic recovery is secure, the savings from allowing the high-income tax cuts to expire should go entirely for deficit reduction.
Over the long term, allowing the high-income tax cuts to expire on schedule would benefit the economy by making deficits and debt significantly smaller than they otherwise would be. There is a broad consensus among analysts that the large deficits projected for coming decades will reduce economic growth.
“The right mix of fiscal policies would combine more stimulus in the short run with more budgetary restraint for the long run,” Blinder argues. I couldn’t agree more.
More About Chuck Marr
Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.
Full bio | Blog Archive | Research archive at CBPP.org
Tax cuts as an economic stimulant are actually counter-productive. As tax cuts go primarily to the richest Americans the result is that they get socked away and do not get spent. We should actually INCREASE the marginal tax rate on the highest income Americans in order to stimulate the economy. For decades we had muchy higher tax rates on high income folks and as a result they, particularly small businessmen, reinvested much of their business income in their businesses, resulting in a great deal of job creation. With the low marginal tax rates on these people we have now, they take that money out for their personal use and it does little or nothing to stimulate the economy.