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Tuesday, November 02, 2010

Will Congress Extend the Obama Tax Cuts?

If Congress doesn't act to prevent it, tax cuts granted as part of the stimulus package will expire at the end of the year, and taxes will go up by $80 billion:

An Overlooked Tax Increase, by Catherine Rampell: Roberton Williams of the Tax Policy Center makes a good point. Why aren’t we paying more attention to the tax increase that is coming at the end of the year when certain stimulus provisions expire?:

Congress and the administration have been arguing for months over extension of the Bush tax cuts: Should we extend them for everyone or only for the poorest 98.3 percent of Americans (which would also maintain some tax cuts for the rich)? Disagreement revolves around roughly $68 billion…But nobody’s talking about the nearly $80 billion hit that expiration of the 2009 stimulus bill will inflict.
The stimulus bill (the American Recovery and Reinvestment Tax Act of 2009) provided $287 billion in tax cuts for 2009 and 2010 but most provisions expire at the end of this year. ... The big kahuna is the Making Work Pay credit — nearly $60 billion a year going to most workers — but partial exemption of unemployment compensation, expansion of EITC and education credits, and greater refundability of the child credit deliver nearly $20 billion more. Taxes will jump for more than 95 percent of Americans when those cuts evaporate come January…
Arguably taking $80 billion away from all but the richest Americans would hurt spending more than pulling $68 billion out of fat wallets. Low- and moderate-income households save less of their income than do wealthier people, so raising their taxes causes a bigger drop in consumer demand. ...

Will Republicans fight for an extension of the Obama tax cuts for at least as long as the try to extend tax cuts for the wealthy, if not longer? Even better, though Republicans would never support it, allow the Bush tax cuts for the wealthy to expire and use the $68 billion that is gained to fund a temporary extension of tax cuts for people who need the money a whole lot more. The tax cuts could expire when, say, the unemployment rate crosses some threshold. (I'd go quite a bit beyond $68 billion -- if the deficit didn't matter when the tax cuts were for the wealthy and intended to be permanent, it shouldn't matter here either). I'd also like to see additional government spending to spur the economy, but there's little chance of that happening with the change in control of the House. So temporary tax benefits to those who need the money the most is the best we can hope for, and I doubt we will get even that.

    Posted by on Tuesday, November 2, 2010 at 10:08 PM in Economics, Fiscal Policy, Taxes | Permalink  Comments (9)


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