(Photo from Runner’s World story by Amy Reinink. Go, Peter!)
In today’s New York Times, this column by new “contributing columnist” Peter Orszag, only freshly retired from his position as Obama budget director (emphasis added):
In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.
Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned…
The beauty of extending the tax cuts for only two years is that canceling them doesn’t require an affirmative vote. It happens by default, so Congressional deadlock works in its favor. And it would essentially solve our medium-term deficit problem, reducing the deficit by $200 billion to $350 billion a year from 2015 to 2020.
Like all plans, this one isn’t perfect…
a key part of this deal is actually ending the tax cuts in 2013 — and that will surely require a presidential veto on any bills to extend them after that. (Failing to follow through would be particularly problematic if the high-income tax cuts are made permanent — at a 10-year cost of more than $700 billion.) Minimizing this risk requires as much upfront clarity and commitment as possible, including a strong and unambiguous veto threat from the president.
Senate Democrats and Republicans almost never come together anymore. This month, they should fight the dual deficits rather than each other. Let’s continue the tax cuts for two years but end them for good in 2013.
I must say, this warms my heart a bit. I’ve been waiting for this moment for a long time–from my “saving face” idea back in January, to my open letter to the President on “Tax Day,” to my hearkening back to Reagan budget director David Stockman upon hearing that Peter was leaving the Administration.
But I still think even temporary extension of even just the (generously-defined) “middle class” portions of the Bush tax cuts is only a second-best (at best) solution to both the need for more short-term stimulus as well as the need to get back to fiscal sustainability over the not-so-long-from-now longer term. They’re not the best solution for the short term because they have far from the biggest stimulative “bang per buck” in terms of deficit-financed fiscal policies and what they do to boost aggregate demand. And the only temporary extension is not the best solution to the longer-term deficit problem (and our inadequate national saving), mainly because our government is really bad at letting expiring tax cuts actually expire (or for that matter letting any scheduled improvements to the fiscal outlook actually happen).
Coincidentally, I was featured in this story by Scott Horsley on NPR today–part of a series of stories NPR is running this week on the Bush tax cuts–doing some usual ragging of mine on the Bush/Obama tax cuts that sounded as if I might be reacting to Peter’s column (which Scott mentions in the story). But Scott actually interviewed me over a month ago!
***UPDATE Wed. 9/8, 6 am: for more to this point, made extremely well, see Ruth Marcus’ column in the Washington Post, where she leads with a little daydreaming related to Peter (although not in the “usual” way, I suppose):
Well, I know what question I’d ask President Obama at Friday’s news conference.
“Mr. President, your former budget director, Peter Orszag, has said that the Bush tax cuts should be extended for two years and then allowed to expire — even for those making under $250,000 a year. You have said those ‘middle class’ cuts should be made permanent. He says that is ’simply not affordable.’ Why is he wrong?”
There is no good answer to this question — something I think the president well understands, even if he is unwilling to publicly acknowledge it. Amazingly, in the midst of supposedly heightened concern about deficit spending, the current debate about the tax cuts involves whether to extend most of them (at a cost of about $2.3 trillion over the next decade) or all of them (adding an additional $700 billion to the tab).
This is not dumb and dumber — it’s irresponsible and irresponsibler.
And be sure to read Ruth’s take on the notion that we can extend these tax cuts only temporarily to avoid the longer-term problem.