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Economists Recommend Extending Bush Tax Cuts

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CNN Money surveyed 31 economists for their economic forecasts and asked what they would recommend Congress doing about the expiration of the Bush tax cuts. From a list, eighteen of the thirty-one chose to extend the tax cuts for everyone, not just those outside the two top tax brackets. Three of the thirty-one supported President Obama’s proposal and nearly all of them opposed doing nothing and letting the cuts expire.

For those not entirely familiar with the backstory on this, President Bush signed into law back in 2001 and 2003 a series of tax cuts now known as the Bush tax cuts. It lowered tax brackets, capital gains taxes, and are set to expire at the end of this year. With the sunset provisions set to take place in a few months, there has been much debate on what should be done. President Obama’s proposal would extend the tax cuts for all but the two top tiers, individuals making more than $200,000 and families making more than $250,000. If Congress were to do nothing, tax rates would increase back to pre-Bush tax cut levels.

I personally believe that we have to do something, as increased taxes will certainly not help the economy (I’m armed with a bachelor’s degree in economics, but don’t tell anyone!), and it needs all the help it can get. I can see the argument for President Obama’s plan of letting it rise for the top two tiers but I believe those two tiers represent a lot of potential investment capital. That’s capital investment we need to spur on new businesses and letting the government “stimulate” the economy isn’t working as effectively as it needs to be. Think of it this way, you make better investment decisions if you’re investing your own money, rather than a strangers. When the government taxes its citizens, it’s spending a stranger’s money.

Before you come up with an opinion, this Washington Post articles tackles five myths about the Bush tax cuts.

What do you think they should do?

{ 47 comments, please add your thoughts now! }

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47 Responses to “Economists Recommend Extending Bush Tax Cuts”

  1. Matt K says:

    on the flip side, our deficit is ballooning at a ridiculous rate. not only are we still funding soldiers in afghanistan, but in the past few years, added ridiculous amounts of bailout money…

    all we do is borrow from china. the govt needs to either stop spending so much or have tax “increases” (not really increases, but returning to previous levels).

    We can’t ignore the deficit and continue to make excuses for it be it a war or the short term economy.

    and your argument about you investing better vs strangers is not necessarily true. think of what people did with all of their extra money this past decade with the tax cuts…. real estate. where are they now?

    • Texas Wahoo says:

      There are arguments to be made that lowering tax rates actually result in more tax revenue to the government because of increased investment and spending.

      My point is just that extending the tax cuts doesn’t necessarily increase the deficit, unless you completely ignore the possibility of increased investment.

      • NateUVM says:

        But those arguments aren’t supported by any evidence. See the Bush tax credits that were sent out to everyone and what people did with them… They simply added them to savings and/or paid down revolving debt with them (i.e. $$$ that they had already spent). People are doing the same with the Obama refundable credit.

        So the net effect of reducing the tax burden is…no additional spending/investment.

        Why, years after debunking “trickle-down” economics, do we still believe in the theory, even though the only thing that has changed is the name?

        As such, I agree with zapeta (below), 100%. There may be efficiencies lost, but at least there is SOME economic activity being generated.

        • Darin H says:

          Because we don’t cut taxes, we cut tax rates?

          The actual data shows that prior to the recession, the government was taking in more than before the tax cuts went into effect.

          The best thing to bring down the deficit is to get the unemployment rate down, think of an additional 10 million tax payers!

          • NateUVM says:

            I am shocked, SHOCKED(!) to find out that a group of Republican House members from a highly partisan House of Representatives came to the conclusion that tax cuts, enacted by a President that oversaw record deficits(Reagan), actually increased revenue. It’s almost as if they were biased…

          • Texas Wahoo says:

            Unfortunately, everyone is biased when it comes to the economy. That is the sad state of affairs we are currently in.

    • Todd says:

      Again, this seems to assume that government is entitled to the money. The deficit has skyrocketed at rates that Bush would have only dreamed of. How about we cut spending a bit? I know this sounds like a tired argument but, as I offered earlier, the government is not entitled to all the money it wants. We all must now operate under budgets, why then can’t the government.

      You do make a point about real estate though. The government should not be subsidizing the purchase of houses. The first time buyers credit was so insanely stupid and without basis, it is stunning that no one was fired. Also, if you want revenue, cut the tax break for home interest.

      People need to realize that a home should NOT be seen as an investment nor as a piggy bank. It is where you live. You should have to save for some time to buy your first home.

      So as you see, we can allow the tax cuts to remain if we cut needless things such as the government’s subsidizing of residential real estate.

  2. zapeta says:

    I’m in favor of Obama’s plan. I don’t think the rich are spending very much of their money on capital investment at the moment. The government can put the tax money to work getting the economy going for everyone.

    • cubiclegeoff says:

      I agree. And if small businesses (the very few that would be impacted) kept the tax cuts, I’m too cynical to think they’d do as much investing compared to making up for years of lost personal profit.

    • Darin H says:

      So they all have it stuff under their mattresses? If their money is in a bank, the bank lends it out. If their money is in investments, those companies use it. If their money is in muni bonds, those cities/counties are using that for infrastructure, etc, etc.

      What I don’t understand is somehow you take money, run it through a bureaucracy, then send it back out into the economy is more efficient than just keeping the money in the economy?

      • pmulroy says:

        *clap*

        Darin H. understands how the financial system works. If you don’t understand what he is saying, you need to read up more.

        • NateUVM says:

          Raising the availability of funds to lend doesn’t mean that those funds get lent out. Perhaps you are aware of the current credit crisis…?

          Sure, lending increases a little bit with more funds available, but with reserve requirements, a combination of both cumpulsory and voluntary, higher now, the impact is not on a one-for-one basis.

          As such, like funneling capital through a beaurocracy, there is efficiency lost in merely letting the rich hold on to more of their money.

          The only way to get more of the money back into the economy is to 1) force government to spend it, or 2) give it back to the people who will spend it… Which are NOT the people who are in the top 2% of income earners.

          • cubiclegeoff says:

            All true. right now banks have money to lend, generally , they are just unwilling.

    • Windy City Woman says:

      Middle class and lower spend more money when they get it; the rich do not.

  3. DIY Investor says:

    I agree that tax should be reinstated for $250,000 and above. It won’t help much but is a move in the right direction. Unfortunately the damage has been done. We morphed from huge surpluses to a national debt that is out of control. We decided to shift major resources into housing and allowed education and other areas to suffer. It will take a long time to get the economy on a solid footing again.

  4. Matt says:

    I guess technically you can say that 58% is a “recommendation” in favor of something in your title “Economists Recommend Extending Bush Tax Cuts” – but it’s hardly a convincing majority.

    Be careful.

    I am in favor of a return to normalcy and support reinstating taxes for those earning over $250k or more.

    Come to think of it, I’m in favor of undoing everything Bush.

    • pmulroy says:

      Matt,

      Your knee jerk reaction of “anything Bush did was bad” and therefore reversing everything he did would be a good idea is amusing to say the least.

      You can’t say you only support reinstating higher tax rates for couples earning over 250k in one sentence and then say you support reversing everything Bush did in the next sentence.

      You realize Bush cut taxes for everyone right? (Yes, this includes those couples making under 250k)

      • NateUVM says:

        I think his comment was in more of a stream-of-thought format. You can tell from the phrase, “Come to think of it…” As such, it would seem that his final conclusion was to sunset all of Bush’s tax cuts, even those for those making less than $250k.

        Not contradictory at all. But that’s just how I read it.

        • pmulroy says:

          Nate,

          I know we don’t see eye to eye on a lot of things, but come on.

          If his final conclusion was that he was in favor of repealing Bush’s tax cuts in their entirety, that is what he would of said. Instead, it is simply another snide comment of Bush=Bad that appeals to a certain demographic that still thinks such simplistic statements are hilarious nearly a decade later.

          • NateUVM says:

            Fair enough, I may have been picking nits. But it seemed like you were doing the same. It seemed clear to me that, whatever his feelings on Bush were/are, that he was ultimately in favor of sunsetting ALL tax cuts.

            To what I believe was your ultimate point, perhaps I SHOULD just let him defend himself. No need for you and I to argue about what a third party meant.

  5. faithann says:

    Private U.S.investment in China in 2000 was 1.3 trillion – in 2008 it was 3.8 trillion. Yeah, private companies will invest it alright – in China!!

  6. trickle down skeptic says:

    If these tax cuts are so good for investment and creating jobs, why hasn’t it had a significant impact the past 8-10 years? It’s not like these are new. Even the post you linked indicates that the higher deficits these cuts caused are making investments expensive.

  7. Windy City Woman says:

    Federal income taxes have been going down and down since the 1980′s. If lowering taxes makes unemployment go up, we should have seen unemployment go down steadily during that time. Instead, unemployment has been high lately, at a time of historically low income tax rates. So how do you explain that?

    • Texas Wahoo says:

      That’s not exactly true. They are higher than they were in the early 90s, at least for high earners.

  8. Windy City Woman says:

    Sorry, I meant to say “If lowering taxes makes unemployment go DOWN…”

  9. cbckidatheart says:

    I agree that extending the tax cuts will help the economy. Jim pointed out that the individuals in the higher tiers provide valuable investment capital to the economy. It is very easy for individuals like me who are in low brackets to jump on the wagon for increasing only the higher brackets. However I think it is easy to recognize hypocrisy in that mindset as well. I would never want my bracket to change if I made more money. Keep the tax cuts!

    • Your dumb says:

      If you made more money, I think it would be awfully greedy of you to complain about your taxes. If you made more money, then taxes obviously wouldn’t be a big problem for you like lower class Americans who are living paycheck to paycheck.

  10. Ryan says:

    Someone on this blog put it best when trying to emphasize the importance of giving wealthy people more tax breaks, i.e. allowing them to keep more of their own money by putting it very simply. His point was that you and I, the middle class, if we get a little extra money each year we use it to pay down our debts, invest in the market, and save a little in the bank. When wealthy business owners/generally wealthy even have a small tax break they get to keep very large amounts of money each year and they usually use it to make more or buy big ticket items (which they also pay big ticket taxes on). They can do this because they have enough capital to start business or because they currently own or operate their own. Most of us here don’t have that kind of knowledge, experience, or expertise other than small single person ventures or writing about making money on the Internet (JIM). His statement went something like this: “When was the last time you created a job?” You haven’t, but they have. Read up, you’ll find that when taxes (and regulations) are less, more incentive arise to create jobs in the United States arise, and companies do less outsourcing making us all very happy.

    • Texas Wahoo says:

      I think it’s actually less about the actual amount of money they are saving and more about the theoretical amount of money they will save.

      When deciding to invest in a new business venture, it always helps to have more money to start it. However, the biggest key is calculating the return on your investment. You have to make a lot more money in the venture if the tax rate is higher, so you’re less likely to start the venture, even if you have the money to do so.

      • NateUVM says:

        What ventures net more than $250k profit right off the bat, payable to its employees as income? Get me in on that!!

        • Texas Wahoo says:

          Why does it have to be right off the bat? Good entrepreneurs are looking well into the future to calculate profitability.

          • NateUVM says:

            Fair enough. But in all seriousness, if the marginal tax rate on earnings greater than $250k is what is stopping you from going into business or otherwise making an investment, then maybe it wasn’t that good of an idea in the first place.

          • Texas Wahoo says:

            The problem is that you often don’t know how good an idea it is until you try it (by investing money into it). HHigher tax rates just mean that it has to do even better than it would otherwise have to do for it to be worth it.

    • NateUVM says:

      Ryan, what you fail to realize is that most, if not all, of the people you just described, both those that are just paying revolving debt and those that are able to infuse capital into the system, are included in the “less than $250k” category. Only 2% of people in this country make more. Are you telling me that only 2% of the populace is responsible for ALL the job growth, etc… that occurs in our economy? Given that most of the jobs in our country are provided for by small businesses, I think not.

      Furthermore, let us not forget that this is only on money earned ABOVE $250k… All those rich people, as long as the tax cuts remain for the lower brackets, won’t have to pay any extra on ANY of their income UP TO $250k. So, just to be clear, we are only talking about money earned ABOVE $250k. It’s a point that I think is getting missed.

      • Ryan says:

        I’m not saying that ONLY 2% of the population is responsible for all job growth, but 2.34% of the households in the US make over 250K (according to the US Census Current Population Survey). That accounts for 2.6 million total American households. I would bet that they account for more jobs created in the United states than the most other American households making less than 250K.

        I think that the better question the administration should be asking themselves on how to lessen the national debt, deficit, and general overspending is to stop f’n spending.

        I can’t really believe that this debate exists, I think the majority agrees that the level of spending by the federal government is unsustainable without raising taxes. IMHO if you support increasing taxes for the wealthy, then you’re in favor of supplementing the increasing federal spending that has gotten out of control.

        • Jim says:

          I completely agree.

        • NateUVM says:

          There are two ways to address the widening budget deficit… Raise revenue or decrease spending.

          Given the sluggish recovery, we need for the government to step in as a “buyer of last resort,” to help sustain aggregate demand while the spending public regain confidence in their job security and the economy as a whole. So cutting spending, in this economic environment, is a non-starter.

          So you look to increase revenue. Given how ill-advised and ill-timed the Bush tax cuts were when they were passed, they are an easy target for a roll-back. Balance the fact that we ARE in a recession and any rise in taxes could seriously harm the economy in its fragile state, and you can see that a piece-meal, or at least a phased approach is a reasonable tact to take. Let those that will actually spend their money in the economy (those making less than, lets say, $250k) keep their tax cuts for the time being, giving the economy time to recover, and sunset the tax cuts on those that aren’t helping the economy all that much by getting them.

  11. fk taxes says:

    obama fails to mention that married people making $250,000 a year will see their taxes rise. so if you make $125,000 and your wife makes $125,000 then you will see your taxes go up. many people dont understand that there are other taxes such as income tax, ss tax, medicare tax, gasoline tax, sales tax, dividend tax, capital gains tax, property taxes etc. if you add all these taxes up then you are close to paying half of your income to the government. In other words you work 6 months for yourself and the other six months for the government

    • NateUVM says:

      Point of clarification… People making $250k won’t see their taxes rise if the top brackets have their tax breaks sunset. It’s only on income OVER $250k, so, in this example, there would be no increase in tax burden.

  12. Santos says:

    This kind of post is really a waste of time. When it comes to economic theory people’s opinion (including economists) is informed more by their political commitment than by data.

    From a common sense pov (my common sense anyway)if people get to keep their money (rich or poor)they have more to spend and invest. Any taxes above the amount necessary for infrastructure, defense and law and order is bad. Anyone who thinks differently should have the opportunity to make a donation to the government ;-)

    • FlyFisher says:

      Santos, I am much agreed. The government taking money, running it through a bureaucracy, and then thinking it will do more than where it is currently being used and invested is ridiculous. Keynesian economics hasn’t worked for Obama (and in the past for that matter), so why don’t we try the more hands off approach?

      • Dude1989 says:

        The problem is that people are greedy! The reason of the recession is giving “the People” more of the money. The richest don’t really give a fuck about middle class and lower class Americans. Look at The northern European countries, they got taxes flying left and right. And they have unemployment rates of 2-5%. 30% of the people work for the government. And they have the highest GDP per capita in the world. Is it the economy or the American mentality? Now tell me. In 2008 everything went to hell because of individuals. You need the government to control so the top 2% dont buy bigger yachts and bigger houses. That’s what they will do when they get more. There is something wrong in the American mentality. Its everyman for himself. If you made your own money then you can buy 5 cars ect. It’s actually sickening. They couldn’t give 2 shits about employing 100 people. They do it to profit for themselves. They will cut all benefits for people if they find it not efficient for business. Maybe to make growth go bananas, we give the people more money in their pockets. But the whole American society is built on everyman for himself. The attitude needs to change. Greedy individuals or corrupt government call it what you want. But both are just as bad.

    • Shckr says:

      Well said, Santos. I also am 100% on board with Ryan’s comments.

      I blame Bush for having a sunset on these tax breaks to begin with. Republicans had control of the senate and executive branch at the time of the cuts and they put a sunset clause as a political trigger to have something to debate about come the next election – “don’t let the Dems raise your taxes! Vote for us again!” It’s all games these days – all games on both ends. They are both pandering to their respective special interest groups. Anyone who believes otherwise is severely naive.

      Long story short is that investors will invest their money in the areas that have the best potential for returns and best risk characteristics – whether it be China, Brazil, US, India, etc. Where you get into trouble is when unnatural events, sometimes caused by the government intervening in private business, cause bubbles (ie. crazy low interest rates for people who can not afford loans….)

      Until we get out of this short-term thinking of “tax credits,” bailouts, and government stimulus we can not get this on a long-term upward trend. The efforts of the last two administrations have been equivalent to fixing a car engine with duck tape and glue. We need to put a long-term policy into place – not a 2 year extension. Get the tax rates set and move one with it. Don’t use them as a way to get elected. Investors need to know that the game is not going to change every 4 years. Uncertainty will keep money on the sidelines, keep unemployment high, and keep the overall economy down.

      We have no one else to blame except ourselves as we are all too short sighted and so willing to vote for whatever candidate will vote us the bank.

  13. I think that punishing someone for working hard and making sacrifices is a crazy idea, especially in a capitalist society. It’s funny how people will bellyache and complain about taxes all the time, but they are fine with the “rich” paying out more than half (combined) of their income in taxes, while almost half of this nation pays nothing in taxes and many of them are paid thousands of dollars from the government!

    People are ignoring the fact that small business owners account for about 75% of job creation in this country. That’s sure more than a “trickle”! Many of them would be affected by Obama’s plan. This is not a myth, it’s a fact! Raising taxes on business owners will increase unemployment – a figure that’s nearing 20% by all serious estimates!

  14. Gates VP says:

    Number 1 reason we need to end the tax cuts: we need the revenue!

    No seriously, have you seen the deficit numbers? We need the tax revenue. Yes it’s going to piss a few people off, but right now, those tax cuts are very big money and they affect a very small percentage of the population.

    Is it going to hurt some people? Definitely. But let’s face it, anything we do to balance the budget is going to cause to some pain. At least this way we’re not going to put people on the street by taxing them. (and I don’t know if you’ve noticed but the US middle class is pretty tight on funds right now).

  15. Dude1989 says:

    Another thing the USA needs to do is pump up your oil prices per gallon by .10-.30 cents. Think of the extra revenues the government can spend. Reduce the defict ect. ITS INSANE that so much of the gas in this country is subsidized. In europe we pay 1.80 cents per liter.


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