Just Say No to Extending the Bush Tax Cuts
I'm rather surprised to find Ezra Klein and myself on opposite sides of the temporary tax cut debate. He supports a temporary extension of the Bush tax cuts for those under $250,000 in income:
I think that would make sense, actually. You want to extend the bulk of the tax cuts until the labor market rebounds, and then you want to take a more skeptical look at them in a time of economic normalcy. You don't want, as a consequence of the recession, to extend them for 10 years when we'll need to turn our attention to deficits in two or three years. The more options we have for reducing the deficit by not doing anything and just allowing current law to take effect (and time-limited tax cuts to expire), the better off we are.
Given the deficits we have, until we find and enact actual offsetting spending cuts (no, I don't want to hear any more about starving the beast), those tax cuts have to go. And a temporary extension is simply going to make it harder to let them expire next year, for the same reasons that the AMT keeps getting "fixed" on an annual "temporary" basis. It is going to be hard enough, psychologically, for people to give up tax breaks they have had for ten years. Stretching it out longer just makes the pain more fierce.
If you're worried about the macroeconomic effects, then enact a different temporary tax cut that helps many of the same people--payroll cuts, high standard deductions, a rebate, whatever. But don't let a tax cut we can't afford live so long that it becomes immortal.
Of course, I really doubt that Congress is overly concerned with the macroeconomic effects. Rather, Democrats don't want Obama to be seen breaking his promise not to raise taxes--and Republicans, who never met a tax cut they didn't like, will happily go along even if it worsens the deficit they've been complaining about.