Bush Tax Cuts for the Wealthy: Options

I assume that some (or many) people in Coral Gables would favor continuing the Bush tax cuts for all income groups, given income levels here.  Here is a different approach explained by Brad deLong (who we would call) a liberal economist.

It is necessary to appreciate that a continuation of the tax cut will increase the deficit because the tax cuts were programmed to expire at the end of this year.  The impact of approving new tax cuts would be a deficit increase of $700 billion.  The solution–use the monies from the tax increase for the rich for job promotion (stimulus) programs.

You would get a smart policy for addressing the current short-term jobs deficit and also make a down payment on the long-term budget deficit if you did the following:  Extend the middle-class tax cuts for a few years, let the top-rate cuts expire on schedule at the end of December, and use the revenue gains in the first year or so to pay for effective job-creating stimulus.  The middle-class tax cuts and the stimulus measures both would end once the economic recovery becomes more sure-footed.  The deficit reduction from ending the tax cuts would be permanent.

via Fiscal Policy: Chad Stone Talks Sense – Grasping Reality with Both Hands.

Krugman on Lessons from 1938 in 2010

Little to add.  The US in falling into a 1938 trap and forgotten the lessons of the Great Depression.

The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

via Op-Ed Columnist – 1938 in 2010 – NYTimes.com.