The article, “The Debate Over How and How Long,” was published in the New York Times on
Quote: “On Monday, Mr. Bush devoted much of his speech to warning that Congress should make his tax cuts permanent. But that change would do little to forestall a recession, because the tax cuts do not need to be extended for another two years.”
My Opinion: If Congress agreed today to make the Bush tax cuts permanent, it would affect current consumer spending.
Martin Feldstein, an esteemed macroeconomist, predicts the odds of an actual recession are greater than 50-50. In that light, Democrats should be drooling over stimulating the economy with big government spending. On the flip side, lower taxes would also stimulate the economy. But lowering taxes permanently, would stimulate the economy even further.
Economic theory posits that permanent income-tax breaks have a larger effect on consumer spending than do temporary income-tax breaks. Back in 2001, Bush lowered taxes – a move set to expire in 2010. At the time, 9 years seemed like a long time – now, 2 years of further tax cuts seems much more transitory. The housing slump and credit crisis not withstanding, tax breaks that may expire, with the possibility of a democratic president stepping in, create nervous consumers.
Extending the tax break now past 2010 will have effects on consumer spending now. What we need is a little good news! November unemployment was 5%, retail sales in December were low, the price of crude oil hit $100/barrel, and our tax break is set to expire in 2010. Now, change that list to: November unemployment was 5%, retail sales in December were low, the price of crude oil hit $100/barrel, and our tax break is extended indefinitely. The last bit of good news will boost consumer spending now amid all of the poor economic news that is rolling in – the news that is part of Martin Feldstein’s odds-of-recession calculation.
So, extend the tax breaks!