Deficits would decrease if tax cuts for wealthiest expire, report says

The federal budget and the economy would benefit by allowing the expiration of tax cuts for higher-income taxpayers, according to a report released Thursday by the left-leaning Center for Budget and Policy Priorities.

Extending the 2001 and 2003 tax cuts "would be highly ill-advised," the report said. Couples making more than $250,000 a year and individuals with income above $200,000 would be affected in 2001. The tax cuts expire Dec. 31

President Barack Obama has proposed letting those tax cuts expire. Congress could begin tackling the issue after the Easter recess. 

If the cuts are extended, analysts suggest that Congress would probably attempt to extend them indefinitely, "increasing deficits and the debt for as far as the eye can see, and thereby adding to the long-term risks that deficits and debt pose to the economy."

Extending the tax cuts for the top 2 percent of taxpayers would increase deficits and debt by $826 billion over 10 years, according to the report. 

Some on Capitol Hill have toyed with continuing relief on the upper brackets to protect small business owners from incurring a tax increase next yea but the CBPP argues that few businesses would benefit from the extension. 

Exempting small business income from the scheduled increase in the top tax rates, as some may propose, would do little for the economy in the short term," the report said.

That change would benefit only the top 3 percent of people with business income. 

"Over the long term, such an exemption would likely harm the economy and the budget by encouraging tax avoidance and reducing revenues.," the report said. 

To read the full report, click here. 

Jay Heflin contributed to this story.