Why Temporary Tax Cuts Are a Bad Idea
Posted at 1:30 p.m. on Nov. 14, 2012
Bruce Bartlett says that the “fiscal cliff” shows why temporary tax cuts like the Bush tax cuts are usually a bad idea.
“Supply-side theory has always held that permanent tax changes are vastly more powerful than temporary changes… People and businesses don’t make the sorts of changes in their behavior that would give the economy a supply-side boost unless they have confidence that today’s tax regime will be in place when the payoff from increased work, saving or investment is realized.”
“A key reason that the tax-rate reductions of the Bush administration failed to have any stimulative effect is because they came with expiration dates from Day 1. Republicans insisted on cutting them on a partisan basis, without negotiating with Democrats. Consequently, they lacked the votes in the Senate to overcome the so-called Byrd Rule, which limits legislation that raises the deficit to a maximum of 10 years when budget reconciliation procedures are used.”