What Would You Do With $75 Billion?

The same day that the president's former budget director proposed extending the entire Bush tax cut, Obama stood his ground, calling for higher taxes for the top two percent of tax payers.

Press Secretary Robert Gibbs explained to reporters: "We cannot afford to extend the tax cuts for those making more than $250,000 a year."

As a technically matter, this is not true. The cost of extending the Bush tax cuts for the top two percent in 2011 and 2012 is $75 billion, or about 0.3 percent of our 10-year debt projection. If we're begging Republicans to see that tax cuts cost something too, it's fair to point out that preserving low tax rates for the rich alone doesn't cost very much. Obama's plan would save only a fraction of the new stimulus measures he recently proposed.

The issue isn't whether we can afford the tax cuts. We can. But should we? In the Age of Deficits, is the best use of $75 billion over the next two years to spare the wealthiest earners from 1999 rates on income and capital? (I'm saying two years because, like Orszag, my preference would be for some serious tax reform by 2013.)

Here, Gibbs has more wisdom on his side. Tax cuts for the rich are not particularly efficient stimulus. Historically, the rich are more likely to save rather than spend their next marginal dollar (although savings are up throughout the tax brackets today). If we forget stare decisis here and ask "What is the best way to spend $75 billion over the next two years?" the Congressional Budget Office would answer: anything, really, besides cutting income taxes for the rich.

The Bush tax cuts will almost certainly be extended in full for a few years, despite the president's wishes, because moderate Democrats are fleeing from the idea of raising taxes on anybody in 2011. If the White House wants to push back, it should ask America: "What would you do with $75 billion?"