REPORT: Expiration Of High-End Bush Tax Cuts Would Have Little Effect On Economic Growth

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"REPORT: Expiration Of High-End Bush Tax Cuts Would Have Little Effect On Economic Growth"

The United States is approaching the so-called “fiscal cliff” at the end of 2012, when a set of policies enacted by the debt deal reached in August 2011 will go into effect. In addition to massive spending cuts, several tax provisions will expire, including the full Bush tax cuts.

Though both the GOP and Democrats agree that the low-end Bush tax cuts, those that give everyone a tax cut but primarily affect the middle class, need to be extended, Republicans have blocked that in order to leverage an extension of the upper-income tax cuts. The logic, Republicans argue, is that not doing so will raise taxes on “job creators” at a time when the economy can least afford it.

An analysis of the fiscal cliff policies by the Economic Policy Institute, however, found that the cost of the Bush tax cuts — and particularly those for high-income earners — far outweigh the benefits:

EPI’s analysis found that letting the entire Bush tax cuts package expire would cause “just over one-third” of the damage of letting the stimulus measures (primarily made up of the payroll tax cut and other middle class tax cuts) expire and less than half the damage of the spending cuts. The high-end Bush tax cuts, as the chart shows, account for 7.3 percent of the cost of the fiscal cliff policies but just 2.3 percent of the economic benefit, meaning their expiration would save a substantial sum of money with a negligible effect on economic growth.

The findings are similar to an earlier report from the Congressional Budget Office that found the expiration of the high-income Bush tax cuts, once multipliers are added, would cause far less economic damage than spending cuts to the discretionary budget favored by Republicans.

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