Tax Cuts for the Top Offer Little Bang for the Buck

Extending High-Income Tax Cuts a Poor Way to Support the RecoveryBetween now and January, Congress will develop a long-term solution to the nation’s deficit. One of the proposals on the table is to allow tax cuts enacted more than a decade ago under President George W. Bush to expire for high-income earners.

A new Congressional Budget Office (CBO) report finds that extending most of the expiring tax cuts — but not those for high-income earners — will boost gross domestic product (GDP) by 1.3%. Extending the tax cuts on top earners yields a much smaller return on investment, boosting GDP by only 0.1%.

Chuck Marr of the Center on Budget and Policy Priorities explains there is no economic basis, therefore, to hold middle-class tax cuts hostage to tax cuts for the wealthy:

This timely report shows that holding a one-year extension of the Bush middle-class tax cuts hostage to an extension of tax cuts on incomes over $250,000 (for married couples filing jointly), as House Republicans have done, creates dangerous economic risks with little economic upside. ...

[E]xtending the high-income tax cuts would mean little for growth in 2013, but failure to extend the middle-class tax cuts ... risks pushing the economy into recession.

Letting the high-income tax cuts expire would also shrink deficits by nearly $1 trillion over ten years. This would be a major step towards stabilizing the debt and, consequently, would boost national saving, private investment, and long-term economic growth.

Another analyst at the Center, Chye-Ching Huang, follows up with a look at how much bang for the buck the economy gets from extending the Bush tax cuts for top earners. She writes:

Using data in the CBO report, we calculate that they deliver only about 30 cents in additional economic growth per dollar of fiscal cost. Measures such as extending unemployment insurance and the payroll tax cut have much more “bang for the buck,” as the chart shows.

High-Income Tax Cuts Are Very Inefficient Way to Support the Recovery


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