The Bush tax cuts, which cost $1.7 trillion between 2001 and 2008, are set to expire at year’s end, posing several critical questions: Which tax cuts should be extended and for whom? Will permanent cuts boost the economy?
Due to the sluggish economy, letting all the cuts expire this year would be a mistake. President Obama wants to keep reductions for those who would most benefit – families making less than $250,000 annually. This would cost $629 billion less than the 10-year price of extending all the Bush cuts, while still providing tax relief to roughly 95 percent of the population.
Extending tax cuts for the rich is highly inefficient. Both economic theory and countless studies suggest that the wealthy are likely to save most, if not all, of a tax cut. When tax cuts increase the disposable income of lower-income earners, however, those people quickly spend it – on everything from rent to groceries and automobiles. This spending helps businesses thrive, strengthening our recovery.