… on what to do about the Bush tax cuts at least. What he writes today goes beyond Treasury Secretary Geithner’s call to let the high-end Bush tax cuts expire as scheduled (at end of this year), although he does punctuate that overlap. Paul pretty clearly recognizes there’s not much of an economic case for a deficit-financed and permanent extension (i.e., beyond the next couple years) of even the so-called “middle-class” Bush tax cuts, when he says this (emphasis added):
If we could wave away political reality, I’d let all the Bush tax cuts expire, and use the improvement in the budget outlook to justify a large, temporary increase in public spending. Unfortunately, that’s not going to happen. Given the political realities, I’d go for a temporary extension of the lower-end cuts, and just letting the upper-end cuts expire.
It comes down to the dual fiscal problem the U.S. economy faces: short-term, the government needs to do all it can to prop up spending; long-term, it needs to reduce the deficit. The latter concern means that it would be a terrible idea to make the high-end tax cuts permanent; that would be a huge drain on the public finances, serving no good purpose. But why not a temporary extension? Because it would do very little to promote spending.
Paul emphasizes the long-term concerns and the “huge drain on public finances” that permanent extension of the upper-end Bush tax cuts would produce–but he at least implicitly recognizes that argument applies even more to the permanent deficit-financed extension of the “middle-class” Bush tax cuts as proposed in the Obama budget, by choosing to call for only temporary extension of even those middle-class cuts. (Recall that the extension of the upper-end cuts costs about $700 billion over ten years, but the extension of “just” the “middle-class” portions proposed in the Obama budget costs over $2.1 trillion over ten years–without AMT relief and without interest–according to the Congressional Budget Office.)