Obama Will Not Extend Bush-Era Tax Cuts, Economists Warn Against Austerity

Do you support Truthout’s reporting and analysis? Click here to help us continue doing this work!

Some GOP members conceded that the modest tax increase for the wealthy in the president’s budget plan “is not going to break their backs.”

Tensions are growing in Washington as the year-end “fiscal cliff” approaches, and in his first press conference since June, President Obama confirmed that he would not compromise on allowing Bush-era tax cuts for the wealthy to expire while extending tax cuts for the middle class.

The president’s budget plan would raise $1.6 trillion in revenue, including new revenue from tax increases on Americans making more than $250,000 a year.

Congress could soon reach a familiar gridlock as a combination of tax cuts, spending initiatives and unemployment benefit extensions are set to expire on January 1.

Obama, who is expected to launch Congressional negotiations at the end of the week, said today that Congress must “provide certainty” to middle-class families making less than $250,000 year that their taxes will not go up. After that, Obama said, lawmakers can set a structure to deal with tax reform and entitlements in order to stabilize the deficit.

Republicans are generally opposed to any tax increases, but Obama said that some members of the GOP have suggested that a modest tax increase on the wealthy “is not going to break their backs.”

Progressives in Obama’s base are applauding the president’s budget plans but warn that Washington’s obsession with cutting spending could threaten the nation’s economic recovery.

In a statement promoted by the nonpartisan research and education center Institute for America’s Future, 350 prominent economists called on Congress to boost government spending to stimulate the economy instead of imposing austerity measures.

“As even Federal Reserve Chairman Ben Bernanke recognizes, it is long term unemployment, not excessive deficits or debt, that is now inflicting the greatest human toll and economic damage,” the economists argued. “Polls show that voters agree joblessness and a bad economy are much higher priorities than deficits.”

Government spending to improve infrastructure, clean-energy growth and the nation’s ailing education system will create jobs, improve the lives of Americans and, over time, generate the tax revenues needed to fix the deficit, the economists argued.

Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School and a co-signer on the statement, said today that economic recovery requires government action to spur the economy and encourage banks and corporations, which are sitting on massive sums of cash due to economic uncertainties, to free up those resources and create jobs.

“The problem now is slow growth that has created the 7.9 percent unemployment rate,” Ghilarducci said. “Any austerity, any budget cuts will just make that worse.”

Ghilarducci estimates that $120 billion in aid to struggling state governments could create about a half-million jobs in the next year.