Extend Bush-era tax cuts to spur economy

Reuters

A woman opens a glass door with a "Now Hiring" sign on it as she enters a Staples store in New York March 3, 2011.

Article Highlights

  • There is a sharp contrast between the Republican and Democratic views when it comes to the issue of job creation.

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  • Supply-side economics makes several common-sense predictions about ways to stimulate economic growth & job creation.

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  • Tax cuts are important for businesses of all sizes - large and small - and for individuals.

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  • Spending cuts are important to get skyrocketing debt and deficits under control.

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Editors Note: This article appeared as part of a "One Minute Debate" series for the 2012 election on the best way to create jobs in the US.  Click here to read the other views.

There is a sharp contrast between the Republican and Democratic views when it comes to the issue of job creation.

Upon taking office in 2009, President Obama signed the American Recovery and Reinvestment Act, which was predicted to provide a Keynesian or demand-side stimulus to the economy, spurring growth and job creation.

One could argue endlessly about whether the $814 billion injection into the economy created or saved millions of jobs. The fact is that three years down the line, the lofty prediction that the Recovery Act would result in average unemployment rates of 6 percent or less has not worked out. It's time to try a different approach.

Supply-side economics makes several common-sense predictions about ways to stimulate economic growth and job creation. Tax cuts are important for businesses of all sizes - large and small - and for individuals. Lower tax burdens mean everyone has more money to spend, invest, and expand the economy. If that logic holds for those earning less than $250,000, why wouldn't it hold for those making more than that arbitrarily picked amount?

Both sides should agree to extend for all income classes the Bush-era tax cuts set to expire at the end of this year. This would lead to a cycle of investment, hiring, and economic growth that would end up increasing government tax revenue (more earners making more money), thus reducing the deficit and debt. At the same time, it would also resolve the growth-crushing uncertainty about tax rates currently facing businesses and consumers.

Spending cuts are also important to get skyrocketing debt and deficits under control and to assure businesses and consumers that they won't face future tax hikes to finance government operations.

In August 2009, Mr. Obama warned against raising taxes in an economic downturn since it "would just ... take more demand out of the economy and put business further in a hole." Now, he must heed his own advice.

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About the Author

 

Aparna
Mathur
  • Aparna Mathur is an economist who writes about taxes and wages. She has been a consultant to the World Bank and has taught economics at the University of Maryland. Her work ranges from research on carbon taxes and the impact of state health insurance mandates on small firms to labor market outcomes. Her research on corporate taxation includes the widely discussed coauthored 2006 "Wages and Taxes" paper, which explored the link between corporate taxes and manufacturing wages.
  • Phone: 202-828-6026
    Email: amathur@aei.org
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