What If We Extend the Bush Tax Cuts, and the Economy Tanks?

Former budget director Peter Orszag talks with Benjy Sarlin from the Daily Beast about the Bush tax cuts. I still think Orszag is talking sense on extending the Bush tax cuts temporarily, rather than doing anything permanent:

"That may have a degree of difficulty level 9," he said of his [two-year tax extension] plan, "but everything else has a degree of difficulty level of 10."

To Orszag, the decision by the White House and Democrats to extend the cuts to at least the middle class, a $3 trillion move over the next 10 years, would become critically dangerous to the nation's fiscal health if the economy unexpectedly tanked again at some point. For a nation that has experienced its share of black swans in the financial world, it's an ominous warning.

"You could get lucky," he said. "There's huge amounts of uncertainty over all these numbers. The example I like to use is the deficit in 2015 is projected to be about 5 percent of GDP, but the 90 percent confidence interval is plus or minus 5 percent of GDP, so it's really somewhere between 0 percent and 10 percent. So it's possible the world is going to turn out a lot better than projected and the medium-term fiscal problem kind of fades, but I certainly wouldn't want to be betting on that, and it could turn out much worse."

Read the full story at Daily Beast.