A new report from the Congressional Budget Office (CBO) gives fresh ammunition to supporters and opponents of the tax cuts enacted by President George W. Bush.
The CBO document released Thursday said a short-term extension of the Bush-era tax breaks would boost GDP and cut unemployment, but it warned that continuing them for too long would wreak havoc on the economy.
According to the CBO, continuing the Bush tax cuts would help boost the gross domestic product 0.6 to 1.7 percentage points in 2011 and shave the national unemployment rate by 0.3 to 0.8 percent.
However, extending the cuts for too long would create “daunting long-term fiscal challenges” and “reduce long-term economic growth,” the CBO said.
Democratic leaders have long argued that extending the tax cuts would add to the federal deficit and depress the economy.
On the other side of the debate, Republicans, and more than a few Democrats, argue the tax cuts should be kept in place to help the economy recover.
Democratic leaders want to extend the breaks that benefit the middle class while letting the ones for the wealthy expire. Republicans want to continue all of the measures.
Liberal leaders contend their plan is fiscally more responsible. The Democratic proposal would add about $3 trillion to the deficit during the next decade, while the GOP plan would cost $3.7 trillion, according to data compiled by The Washington Post.
Allowing all of the tax cuts to expire — an idea neither
party supports — would not cost the government a dime and would actually lower
the CBO’s deficit projection from more than $1.3 trillion for fiscal year 2010
to $1.07 trillion in 2011.
The CBO estimated the federal budget deficit would
decline to 4.2 percent of GDP if all of the tax breaks are allowed to expire.
Shortly after the CBO released its report, House Majority Leader Steny Hoyer (D-Md.) blasted Republicans for proposing to extend Bush policies he said failed to rescue the economy from a historically tough recession.
“As Democrats fight for fiscal discipline and a strong economy, Republicans are advocating for a return to the exact same agenda that created enormous deficits and drove our economy into the deepest recession in a generation,” he said in prepared remarks.
“Going back to the failed Bush policies of the past is not the right direction for our country,” Hoyer added.
Senate Minority Whip Jon Kyl (R-Ariz.) on Wednesday said extending all of the Bush tax breaks is crucial to job creation.
“By extending current tax rates, Congress could go a long way toward accomplishing what the administration has been trying to do for almost two years: create jobs,” he said in prepared remarks. “So far, the Obama administration has tried to create jobs by spending money on initiatives packaged as economic ‘stimulus.’ But that approach has not worked.”
Shortly before Congress adjourned for the August recess, Rep. Gerry ConnollyGerry ConnollyBudget woes hinder US cybersecurity buildup Our IT system is dying: Here’s how President Trump can save it What Democrats want in shutdown fight MORE (D-Va.) said the signs of slowdown in the economic recovery have prompted the Senate to look at temporarily extending all the Bush-era tax cuts.
“I think there is some chance that the Senate will provide for a temporary extension of all of the tax cuts,” Connolly said.
Extending tax breaks for the wealthy for one year would cost about $40 billion more than a one-year extension of the middle-class tax breaks alone.
The Senate is expected to take the lead in deciding which tax provisions should be continued.
Connolly supports a temporary extension of all the tax cuts and said the only way to continue is for the upper chamber to make the first move.
“I never thought I’d say these words, but our hope is in the Senate,” he said.