Christina Romer of the Council of Economic Advisers struck back in a White House blog post at the notion that America must extend the Bush tax cuts for millionaires. But increasingly, Romer and others in the Administration will have to go up against their own party.
In the blog post, Romer took direct aim at those who favor extending the high-income tax cuts (most of them who consider themselves deficit hawks deeply concerned about the long-term fiscal health of the nation):
First, extending the high-income tax cuts would provide very little job creation in 2011. There is widespread agreement that the short-run economic benefits of high-income tax cuts are small. The Congressional Budget Office lists a tax cut for high-income earners as a particularly ineffective job creation measure. Private sector forecasters haver reached the same judgment. The vast majority of economic research shows that higher-income earners spend less of a tax cut and so tax cuts to those earners create fewer jobs throughout the economy [...]
If lawmakers are truly concerned about job creation, as they should be given the painfully high rate of unemployment, many approaches would be more cost effective than extending the Bush tax cuts for high-income earners. For example, a private sector study recently concluded that a third year of the Making Work Pay tax credit would be far more stimulative. Likewise, estimates by the Council of Economic Advisers suggest that that spending $10 billion to prevent the layoffs of teachers, firefighters, and police would lead to nearly twice as many jobs as the estimated $30 billion of high-income tax cuts—that’s twice as many jobs for one-third the cost. The small business jobs bill currently before the Senate, which contains both targeted tax cuts for small businesses and measures to improve their access to credit, would also be a far more powerful and cost-effective way to stimulate economic growth and job creation [...]
While the Office of Management and Budget estimates the high-income tax cuts would cost about $30 billion in 2011, the yearly cost is expected to grow as the economy recovers. Extending them permanently would add about $700 billion to the ten-year deficit. That is a cost that we simply cannot afford, particularly for something that does so little to aid our recovery.
Romer will have to contend with members of both parties to ensure that those high-income tax cuts aren’t extended. Because the White House wants Bush’s middle-class tax cuts extended, they’ll have to bring a bill to the floor. And that bill would almost certainly draw an amendment for the tax cuts for the wealthy as well. Just today, we had two members of the Senate Democratic caucus support them. Budget Committee Chair and noted deficit peacock Kent Conrad:
We’ve got to be very careful with the timing of what we do. There’s no question in my mind that taxes have to go up on the wealthiest among us. The question is when. I don’t think this is the moment.
Do tell us when the moment will be.
In addition, Joe Lieberman told a Connecticut radio show that he leaned toward extending the tax cuts, for largely the same reasons as Conrad.
You can add Evan Bayh and Ben Nelson to those who would extend the tax cuts for the wealthy, and all of a sudden you can compile at least 45 votes. The only thing the Obama Administration has on their side is that something must pass or they’ll expire, and if used skillfully, the leadership could put Republicans – and some Democrats – in an uncomfortable position, rejecting middle-class tax cuts.