The quarrel over extending the Bush tax cuts is escalating. In his Ohio speech the president gave the issue prominence. He said the country could not afford to keep the cuts in place for high-income households: it would cost a fortune, and have relatively little effect on employment. Such a policy would be fiscally irresponsible, he said.
With all the other budgetary pressures we have — with all the Republicans’ talk about wanting to shrink the deficit — they would have us borrow $700 billion over the next 10 years to give a tax cut of about $100,000 each to folks who are already millionaires. And keep in mind wealthy Americans are just about the only folks who saw their incomes rise when Republicans were in charge. And these are the folks who are less likely to spend the money — which is why economists don’t think tax breaks for the wealthy would do much to boost the economy.
Extending the cuts for high-income households permanently, as Republicans have advocated up to now, would indeed be irresponsible. So it was interesting to see John Boehner on Wednesday saying he was open to a two-year extension. This is an important change. The high-income part of a two-year extension would cost less than a fifth of the $700bn Obama mentioned. Some Democrats might think that this was a price worth paying for the larger middle-class tax cuts, even if, other things equal, they would rather not cut taxes for the rich.