The Congressional Budget Office has calculated that ending the Bush tax cuts for earners on income over the first $250,000 would contribute $950 billion over a ten-year period. $823 billion of that would come from the increased revenue, and another $127 billion would arise from the lower interest on the associated debt. The Center on Budget and Policy Priorities added that this could be done without very much risk to the economy, which stands to reason, because the wealthy would be far more likely to park any tax relief in the bank rather than spend it in the economy:
Prior CBO analysis showed the minimal economic risk this would pose in the short-term. CBO previously concluded that extending only the so-called “middle class” tax cuts on income below $250,000, instead of extending all of the tax cuts, would “be more cost-effective in boosting output and employment in the short run because the higher-income households that would probably spend a smaller fraction of any increase in their after-tax income would receive a smaller share of the reduction in taxes (relative to current law).”
This $950 billion approaches the $1.2 trillion that would be needed to offset the sequester, the automatic cuts to defense and discretionary programs scheduled for the first of the year. Nancy Pelosi and others have said that they could take the budget contributions from letting the tax cuts over $250,000 expire and apply them to offsetting the sequester. This gets you within $250 billion of a total offset, or at least delaying the trigger for several years.
Given the full-court press on deficit issues sure to come in the lame duck session, an outcome of the Senate-passed tax plan, with the expiration of the tax cuts above $250,000, and using those funds to offset the trigger, is probably a least-worst scenario for the economy. Of course, with the other austerity measures, like the end of the payroll tax cut, a new Medicare tax on high-income earners, and possibly a rollback of extended unemployment benefits, there will be still be too much fiscal contraction in the system, even in a least-worst scenario, to drag on economic growth.
The Congressional Progressive Caucus’ Budget for All, with its immediate investment of trillions of dollars in direct job creation and infrastructure, represents the only policy proposal that actually focuses on the immediate task at hand, namely the struggling job market (in some respects it doesn’t go far enough, in that it doesn’t delay its deficit reduction agenda items far enough into the future). But that kind of talk gets you laughed out of Washington, I guess.