"Brother can you spare an economist?"

by Bruce Webb

One raging argument that needs to be settled by the end of this year is what to do about the sunsetting of Bush tax cuts. Now it seems there are three general end points here: one, do nothing and they all expire at year’s end; two, extend them all, perhaps permanently; or three do the Obama thing and selectively extend cuts for couples making under $250,000 while letting higher income households revert to Clinton era standards. Well I am perfectly ready to debate the political and social justice aspects of any of these but maybe am not equipped to answer the following technical question.

The argument against allowing tax cuts to expire on the top 2% is that it would be counter-productive in a time of recession presumedly because it would serve to cut back on investment by that same top 2%. But if they are all sitting on their money anyway, resisting personal spending and as the controllers of capital sitting not only on piles of corporate cash but also on huge banking reserves hence choking off liquidity via loans to smaller banks and small businesses how exactly is nicking them an extra 3% or so in top marginal rates actually creating a net retreat in investment? It seems the argument that “If you tax the rich in a recession they won’t lend/invest” kind of fails somewhat if they aren’t lending/investing to start with. What does Kent Conrad know about this equation that I don’t know?

Gosh, if I only knew some smart, forward thinking economists to pose this question to.

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