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Michael McAuliff
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Obama's Lower Taxes Will Slow Economic Growth: CBO

Posted: 04/20/2012 5:40 pm

Tax Cuts

WASHINGTON -- Republicans have pounced on a Congressional Budget Office report Friday that says President Barack Obama's budget would add to deficits and slow the economy, but without mentioning a key reason why: Obama's lower tax rates.

“It’s official: President Obama’s idea of a ‘balanced approach’ leads to an unstable economy," said House Speaker John Boehner (R-Ohio) in a statement. "This CBO report confirms the president’s policies will hurt long-term job creation and economic growth, and proves we have to do everything possible to stop Washington from spending money it doesn’t have, get control of our debt, and get government out of the way."

The Karl Rove-linked American Crossroads also took a shot.

"Decreased growth. Increased deficits," Crossroads spokesman Jonathan Collegio said in a statement. "Not exactly an optimistic or resonant policy platform for the administration."

The CBO said that compared to current law, Obama's 2013 budget would at first improve economic output, but then lower it by between .5 percent and 2.2 percent from 2018 to 2022.

The CBO report's summary explained it this way:

CBO estimates that the President’s budgetary proposals would boost overall output initially but reduce it in later years. For the 2013–2017 period, under most of the estimates CBO produced using alternative models and assumptions, the President’s proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people’s disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income.

The reason Obama's proposed taxes are lower -- and his projected deficit higher -- than under current law is because the Bush-era tax cuts that Obama extended for two years in 2010 are about to expire. If that current law is followed and the Bush cuts are allowed to end, it would raise an extra $4 trillion from taxes, lowering the deficit. But Obama proposes letting the cuts expire only for people earning more than $250,000 a year, taking in less revenue than would be brought in under current law after the expiration of all the Bush era cuts.

House Republicans estimate their spending plan, authored by Rep. Paul Ryan (R-Wis.), would cut about $5 trillion more than Obama's budget. But the GOP plan also cuts taxes more, especially on the high end, by not only keeping all the Bush cuts, but also dropping rates further. Millionaires would average an annual windfall of about $187,000, according to an analysis by Citizens for Tax Justice.

The CBO will not conduct a similar macroeconomic analysis of that Ryan proposal.

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