'The range of options under consideration...is remarkably narrow'
Business Week's look at the Bush tax cuts is a useful reminder that "the cuts weren't designed as Keynesian energy shots. They were supposed to promote long-term growth by realigning incentives." Which is to say, they're not the right cuts to use if we're looking for Keynesian energy shots. But that's all a theoretical question. In reality, Democrats are going to fold almost totally on the tax cuts:
Today, high unemployment is coloring the debate over whether to extend the tax cuts. Democrats who originally opposed them on grounds that they favored the rich are open to continuing them now, figuring that the economy needs all the help it can get. Macroeconomic Advisers, a St. Louis-based economic consulting firm, estimates that a "full sunset" of the Bush tax cuts (and President Barack Obama's modest middle-class tax cut of 2009), as called for by current law, would cut 0.9 percentage points off the growth in gross domestic product next year—a big hit considering that economists surveyed by Bloomberg News expect growth of only 2.9 percent next year.
As a result, the range of options under serious consideration in Washington is remarkably narrow. Republicans want to extend the Bush tax cuts for 100 percent of taxpayers; the Obama Administration wants to limit the extension to a mere 97 percent or 98 percent, excluding individuals earning $200,000 a year or more or families earning $250,000 or more. On Aug. 4, Treasury Secretary Timothy F. Geithner said "the country can't afford" to keep the top-end reductions.
Obama's plan isn't so affordable either. According to the staff of the congressional Joint Economic Committee, the Obama plan would forgo revenue of $2.8 trillion from 2010 through 2020. Protecting high-income taxpayers from the tax-cut expiration as well would cost an additional $700 billion in forgone revenue over the same period, Geithner says.
And anyone want to guess who'll be blamed when CBO adds $3 trillion to its deficit projections?