CBO Chief Suggests Making Tax Cuts Permanent

By Kyle LaFleur - Talk Radio News Service

Congressional Budget Office (CBO) Director Doug Elmendorf showcased four potential tax cut extension scenarios during a Senate Budget Committee hearing on Tuesday. 

The scenarios include a full permanent extension of the 2001 and 2003 tax cuts, a partial permanent extension that would only raise rates on Americans making $250,000 or more per year, a full extension for all only until 2012, and finally a extension until 2012 for just those under the $250,000 per year threshold.

Congress has so far been unable to take action on renewing some or all of the tax cuts that were enacted during the Bush administration. There is bipartisan agreement on extending tax relief for the middle class, but Democrats disagree with Republicans about not raising rates for the nation’s top two percent of income earners. Democrats say allowing those tax rates to return to Clinton-era levels would generate $700 billion over the next decade.

Either way, Elmendorf said any action would help the economy.

“As CBO has reported before, permanently or temporarily extending all or part of the expiring income tax cuts would boost output and employment in the next few years relative to what would occur under current law were those tax cuts to expire.”

A permanent extension, said Elmendorf, whether full or partial, would have a greater boost to the economy in the next two years then one that would end in two years, with the full and permanent extension boosting employment and output higher for the next two years then would a partial extension.

“The effects of extending those tax cuts on the economy in the longer term would be very different from their effects in the next two years,” said Elmendorf.  

Previous CBO predictions show national income rates decreasing by 2020 regardless of which tax extension is followed. Elmendorf suggested that Congress must curb spending to offset the cost of cutting taxes.

“A permanent extension that was not accompanied by future increases in other taxes or reductions in federal spending would roughly double a projected budget deficit in 2020…from about $700 billion to about $1.4 trillion.”

Elmendorf added that CBO studies show that the nation’s unemployment rate, currently bordering 10%, is not expected to fall below eight percent by 2012, or six percent by 2014. 

“CBO expects, as do most private forecasters, that the economic recovery will proceed at a modest pace during the next few years,” said Elmendorf.