As Congress debates whether to extend Bush-era tax cuts for the wealthiest Americans at least one prominent U.S. economist has already cast his negative vote.
"Not all budgetary dollars are created equal," said Alan Blinder, professor and co-director of Princeton University's Center for Economic Policy Studies, in a conference Wednesday morning. "Some have a lot of bang for the buck, and some have very little. The GDP increase per dollar of budgetary cost is in the range of 1.6, 1.7 for things like food stamps and unemployment benefits, and in the range of .35 for extending the Bush tax cuts. We could get some substantial job creation by simply reprogramming the $75 billion that would be saved over the next two years by not extending the upper-bracket Bush tax cuts and spending it instead on unemployment benefits, food stamps, and the like."
Blinder's economic advice supports the tax policy of President Obama and the Democrats, who would like to maintain tax cuts for 95 percent of Americans, while letting the cuts for those with incomes above $250,000 expire. Letting the tax cuts lapse is projected to trim approximately $675 billion from the deficit over 10 years, according to the Center for Budget and Policy Priorities.
The GOP, by contrast, is aiming to extend the Bush tax cuts across the board, and has tried to block the billions in deficit spending to extend benefits to the long-term unemployed.
Blinder said that extending tax cuts for the wealthiest Americans would only exacerbate an ever-increasing income gap.
"One of the objections a lot of us raised back in 2001 when the Bush cuts were originally enacted was that they were...adding further post-tax income inequality to an economy that was already producing a lot of pre-tax inequality," he said. "I still feel that way. On the other hand, unemployment benefits and food stamps tend to go to people with much much lower incomes [who] need it a lot more, and you get substantially more GDP boost and job creation than if the same amount of money were spent extending tax cuts at the top."
After the U.S. has dug itself out of this recession, Blinder said, Congress should then make it a priority to start digging the country out of debt.
"What we really need in terms of fiscal policy is one step to the left and then multiple steps to the right. I think there's a strong case for some fiscal stimulus, and the extension of unemployment benefits is just a perfect piece of that broader policy. But a commitment to deficit reduction down the line would be just what the doctor ordered."