Extend for all the Bush tax cuts
By Peter Morici
web posted August 2, 2010
Washington is turning to the Bush tax cuts scheduled to lapse in January.
The Bush tax cuts were a huge success, and failing to extend those for all Americans—not just families earning less than $250,000--would be a terrible mistake.
Contrary to the propaganda coming out of the White House and the Treasury, George Bush achieved a lot of growth the first seven years of his presidency by deregulating the economy and cutting taxes.
China and the banks abused the wide open U.S. market—the former by undervaluing its currency and otherwise juicing its trade surplus with the United States, and the latter by making foolish loans and disguising the risk in complex mortgage-backed securities to create big executive bonuses. The trade deficit deflated demand for what Americans make and credit crunch made business expansion impossible—voila the Great Recession!
Be clear. The Bush tax cuts had little to do with the collapse and in fact gave us many good years of solid growth.
The economic recovery is slowing. Housing starts and consumer spending are flagging, and economists have marked down growth forecasts to less than 3 percent—that’s not even enough to bring down the unemployment rate.
Growth will get some help this summer and fall from the replacement cycles on technology equipment—computers and internet backbone—and commercial trucks and other business equipment. Many businesses have stretched vehicles and other equipment to the point that the next maintenance cycles are simply to expensive—replacement now is the best business decision.
Those forces will have played out and energy prices will be rising again by winter—that’s when President Obama’s higher taxes would take effect.
Increasing taxes in January would kill what is a weak recovery.
For the President, soaking the rich may be a good political tactic to deflect public displeasure with congressional Democrats but it is terrible economy policy.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.