CBO Director Doug Elmendorf testified before Congress Tuesday about the long-term economic impacts of making the Bush tax cuts permanent. Contrary to conservative ideology, the CBO’s research and modeling finds that making the tax cuts permanent would REDUCE the nation’s output and income by almost 1.4 percent by 2020, becoming an even bigger anchor on our prosperity in the out years.
“Those effects are largely the net result of two competing forces,” Elmendorf writes in his CBO blog. “All else being equal, lower tax revenues increase budget deficits and thereby government borrowing, which reduces economic growth by crowding out investment. At the same time, lower tax rates boost growth by increasing people’s saving and work effort.”
In other words, if government has to borrow huge amounts of money to fund the deficit, that money is not available for private investment in factories, homes, college educations or small businesses.
I’ll have to leave it at that for now, since I’m headed out the door to the dentist.