While it may seem paradoxical, CBO Director Doug Elmendorf is going to argue it.
The extension of the Bush tax cuts would actually reduce income, rather than increase it, according to Elmendorf (via Erza Klein).
Here’s why, from Erza Klein’s blog:
“Lower tax revenues increase budget deficits and thereby government borrowing,” Elmendorf said, “which crowds out investment, while lower tax rates increase people’s saving and work effort; the net effect on economic activity depends on the balance of those forces.”
Elmendorf used this graph to display his findings. Note, the negative impact of a permanent extension by 2020, that’s sometime from now. Check out the full presentation here >
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