By Jay Heflin - 10/05/10 03:31 PM EDT
"This would be quite a signal, instead of insisting on higher taxes for that group," he told an audience at the Fiscal Choices conference hosted by the Center on Budget and Policy Priorities, Demos, the Century Foundation, and the Economic Policy Institute.
Feldstein noted that within the business community there is a perception that "the president doesn't like them, that he thinks they are greedy, nasty people, and that they should pay higher taxes."
"I don't think that is understood in the administration," he added, "So I think [extending all the tax cuts] would have a bigger affect [on] how small business owners think about the future and about their relations with the administration."
Feldstein suggested a two-year extension for all the tax cuts.
Nobel laureate Paul Krugman shared the stage with Feldstein and argued that it would be hard to pass a temporary extension in the current political environment.
"My guess is Republicans would not go along with it," he said, adding that it will be extremely difficult to repeal the tax cuts for the upper brackets in later years if Congress decides to continue them beyond their expiration next year.
"If we miss the opportunity [to let them expire], it's going to be very, very hard to get back to doing any of it," he said.
House Ways and Means ranking member Dave Camp (R-Mich.) told reporters last month that he was open to a two-year extension instead of making the tax cuts permanent.
Obama opposes extending relief for the upper brackets because he believes the country can ill afford the $700 billion, ten-year cost to do so.
Feldstein is puzzled by that argument.
"We can't afford the 700 billion, but we can afford the two-trillion [to make the middle-class tax cuts permanent]," he said. "I never understood that arithmetic."
Feldstein warned there could also be tremendous political fallout for Obama to just extending the tax cuts for the middle-class.
"If there is a double-dip [recession], what is it going to be blamed on?" he said. "It's going to be blamed on letting the taxes go up. He [Obama] doesn't want that."
Democratic leaders are expected to decide the fate of the tax cuts in the upcoming lame-duck session.