And here is Elmendorf's opinion of extending the Bush Era Tax cuts:
According to the head of the nonpartisan Congressional Budget Office, a permanent extension of the Bush-era tax cuts may provide a temporary boost to the U.S. economy, but would then lessen growth by pushing up interest rates.
Douglas Elmendorf said extending breaks that are supposed to expire at the end of this year would increase demand in the coming years by putting more money in consumers’ pockets, but over the long term the tax cuts would hurt the economy because the government, in their need to finance the loan, would be forced to borrow so much money that it would begin competing with private companies, inevitably driving up interest rates.
“The problem is that if those tax cuts are not accompanied by other changes in the government budget and are simply funded through borrowing,” the borrowing “crowds out other private investment in productive capital -- in the sorts of equipment, the computers, the machinery, the buildings -- that are the source of long-term economy growth,” Elmendorf told the Senate Budget Committee today according to Bloomberg.
Unfortunately, Elmendorf said lawmakers cannot avoid this long term issue simply by extending the tax cuts only for individuals whose income is less than $200,000 or $250,000 for couples filing jointly, as President Barack Obama has recommended.
The President's proposal which covers 97 percent of Americans only reduces the deficit by about 25 percent more than the Republican counterpart.
“Extending all the tax cuts except for those higher-income people has three-quarters or four-fifths, roughly, of the positive effects and the negative effects of extending all of the tax cuts,” he said.
Elmendorf said lawmakers could only avoid higher interest rates in the future if the tax cuts were paired with reduced spending or higher tax revenue from another source. Any large increases in government spending would have the same long term effect on interest rates.
The United States is in the midst of a budget crisis. The spending cuts being proposed by the Republicans would have drastic effects on many Americans and fails to even come close to reducing the budget as much as this administration's proposal. Despite this, Obama's plan still falls short of solving the problem.
America needs major tax reform whose sole purpose is to fix the budget. The best way for America to achieve this goal is by implementing a “national sales” or value-added tax. A VAT would not only go a long way toward balancing our budget and reducing America's debt, but would serve the further purpose of partially balancing America's trade deficit and increasing the rate of savings. Furthermore, a VAT would have a less detrimental effect on the U.S. economy when compared to the income tax. Major tax reform is necessary and a VAT provides the “least worst solution.” We may not like it, but it's really the only choice we have at this point.
Douglas Elmendorf said extending breaks that are supposed to expire at the end of this year would increase demand in the coming years by putting more money in consumers’ pockets, but over the long term the tax cuts would hurt the economy because the government, in their need to finance the loan, would be forced to borrow so much money that it would begin competing with private companies, inevitably driving up interest rates.
“The problem is that if those tax cuts are not accompanied by other changes in the government budget and are simply funded through borrowing,” the borrowing “crowds out other private investment in productive capital -- in the sorts of equipment, the computers, the machinery, the buildings -- that are the source of long-term economy growth,” Elmendorf told the Senate Budget Committee today according to Bloomberg.
Unfortunately, Elmendorf said lawmakers cannot avoid this long term issue simply by extending the tax cuts only for individuals whose income is less than $200,000 or $250,000 for couples filing jointly, as President Barack Obama has recommended.
The President's proposal which covers 97 percent of Americans only reduces the deficit by about 25 percent more than the Republican counterpart.
“Extending all the tax cuts except for those higher-income people has three-quarters or four-fifths, roughly, of the positive effects and the negative effects of extending all of the tax cuts,” he said.
Elmendorf said lawmakers could only avoid higher interest rates in the future if the tax cuts were paired with reduced spending or higher tax revenue from another source. Any large increases in government spending would have the same long term effect on interest rates.
The United States is in the midst of a budget crisis. The spending cuts being proposed by the Republicans would have drastic effects on many Americans and fails to even come close to reducing the budget as much as this administration's proposal. Despite this, Obama's plan still falls short of solving the problem.
America needs major tax reform whose sole purpose is to fix the budget. The best way for America to achieve this goal is by implementing a “national sales” or value-added tax. A VAT would not only go a long way toward balancing our budget and reducing America's debt, but would serve the further purpose of partially balancing America's trade deficit and increasing the rate of savings. Furthermore, a VAT would have a less detrimental effect on the U.S. economy when compared to the income tax. Major tax reform is necessary and a VAT provides the “least worst solution.” We may not like it, but it's really the only choice we have at this point.
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