JONATHAN CHAIT JULY 22, 2010
Some Democrats in Congress are floating a plan to temporarily extend the upper-income Bush tax cuts in the name of economic stimulus:
Democrats are considering a plan to delay tax hikes on the wealthy for two years because the economic recovery is slow and they fear getting crushed in November’s election.
It could mean a big reprieve for families earning $250,000 and above annually.
This isn't the worst idea in the world, if they do sunset the tax cuts in 2012. There are a couple problems, though. First, it's not a cost-effective way to stimulate the economy. The Bush tax cuts were not designed to encourage consumption. They were designed to incentivize the rich to work harder and more productively, out of the theory that Clinton-era tax rates had dampened the entrepreneurial spirit and the desire to invest. (Obviously, right? Nobody was trying to get rich in the 1990s.) Alternatively, this theory was a handy excuse to enact a policy designed to make rich people richer. In either case, nobody was claiming that it was a way to increase consumer spending. Indeed, one prevailing right-wing justification from the era was that upper-bracket tax cuts were needed because the rich save more money than the poor and middle class. (That was true, though if you want to promote saving, deficit reduction was far more efficient.)
Anyway, if you want to increase the deficit in order to stimulate the economy, extending the Bush tax cuts is a very inefficient way to do it:
The second problem, of course, is that you can create the political expectation that the upper-bracket Bush tax cuts are something that just get extended year by year,like many other policies. That could have truly awful long-term budgetary consequences,and probably isn't worth the risk of a small short-term stimulus.
I'm sure all the conservatives who are worked up about debt are going to condemn this, right?