Reaching Compromise on Possible Tax Cut Extension

7 11 2010

Over a month ago, I wrote a post about the dilemma Congress has been facing regarding extending the Bush tax cuts (See To Extend, or Not to Extend). Now that the mid-term elections are over, and Republicans have control of the House of Representatives, there is new buzz around the issue.
President Obama has now said he would be willing to negotiate with Republicans to ensure that the tax cuts are extended for the middle class  by January 1, 2011.
As I previously mentioned, the main point of contention is, if there would be an extension, who would it apply to? Democrats have been pushing for no extension or at least only a permanent extension for income of up to $250,000 for married couples and $200,000 for singles. On the other hand, Republicans have been fighting for a permanent extension of the tax cuts for everyone regardless of income.
From the looks of things, many are expecting that the compromise between both party’s agendas will come down to a temporary extension for everyone, as opposed to a permanent one, and rather limiting it to one financial group.
It is estimated that a one-year extension for everyone will cost between $250 billion and $350 billion, which is far less than the decade-long projection of $3.7 trillion if the tax cuts were made permanent.
Extending them temporarily, could help boost middle-income families that are still clawing themselves out of the effects of the recession. It could also provide more time to figure out how to tackle the looming U.S. deficit that is of utmost concern, and a major reason why a permanent extension would be harmful.
What are your thoughts? Should the tax cuts be extended for everyone temporarily, rather than permanently? Or should they not be extended at all?




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