The Bush-era tax cuts should be extended for all Americans to help spur the economy, but even the middle-class cuts should end in two years, former U.S. budget director Peter Orszag says.
That’s the best way to solve the country’s twin deficits: the near-term jobs deficit and the long-term budget deficit, the recently departed head of the White House Office of Management and Budget writes in a New York Times opinion piece.
“In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether,” argues Orszag, whose views differ from those of his old boss, President Barack Obama.
“Ideally, only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.”
Obama supports a permanent extension of the middle-class tax cuts. But Orszag said extending the cuts permanently is not affordable.
"Let's continue the tax cuts for two years but end them for good in 2013," he said.
Without action by Congress, tax rates will revert back to those in place before the tax reductions of 2001 and 2003.
“No one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned,” Orszag writes.
The Obama administration has advocated maintaining the tax cuts for most Americans, but letting them rise for individuals making more than $200,000 and couples making more than $250,000.
But longer term, “the tax cuts are simply not affordable,” Orszag maintains.
John Taylor, Treasury undersecretary during the (George W.) Bush administration, also thinks the tax cuts should be continued.
“A statement that taxes will not increase on Jan. 1 would be a good stimulus,” Taylor, now an economics professor at Stanford University, told Bloomberg.
White House spokeswoman Amy Brundage, responding to Orszag's article, told Reuters that Obama has been "clear about his support for extending tax cuts for the middle class and about ending the tax cuts for the wealthiest 2 percent of Americans."
Ahead of the congressional elections on Nov. 2, Republicans are criticizing Obama's Democrats for opposing an extension to the cuts on wealthier Americans, saying doing so would end up hurting small businesses, whose earnings are often taxed through the income-tax code rather than under the corporate rate, Reuters reported.
© 2014 Moneynews. All rights reserved.