Economists: Extending Tax Cuts Will Aid Recovery

Many economists agree that letting the Bush tax cuts expire is a hit small businesses, like this lumber yard in Darien, Conn., can't take.

Wall Street is watching two things very closely, the calendar and Congress. Will Congress allow the Bush tax cuts to expire at the end of this year?

The recession hit Dave Campbell's lumber yard in Darien, Conn., hard. Letting the Bush tax cuts expire, he says, would cut even deeper.

"It just takes cash out of our business," he says. "It's less people we can hire. It's a big deal."

Many economists agree that it's a hit the economy can't take right now.

"I think if the tax cuts expire for everybody, then we'll be back in recession, no doubt. It would be a huge policy mistake," says Moody's chief economist Mark Zandi.

President Obama has proposed extending the cuts for individuals making less $200,000 and couples making less than $250,000, but under his plan the top two income tax rates, now 33 and 35 percent, would revert to the levels before the bush administration of 36 and nearly 40 percent, reports CBS News business correspondent Anthony Mason.

David Zervos of Jeffries and Company says, "[Letting the Bush tax cuts expire for the top income tax rates] would actually have a pretty detrimental impact."

The reason, he says, the top three percent of households account for a quarter of all personal spending.

"The easiest path is probably some sort of kick the can down the road strategy," says Zervos.

Zandi says, "I would extend the tax cuts for everyone, at least in 2011. I wouldn't raise the taxes next year when the recovery is so fragile."

But extending tax cuts for the wealthy would cost $700 billion over the next decade, according to the Congressional Budget Office. Former Federal Reserve chairman Alan Greenspan, who originally supported the Bush plan, says we can no longer afford it.

He told "Meet the Press" recently that "I'm very much in favor of tax cuts, but not with borrowed money."

Dave Campbell, whose taxes as small business owner would jump, says he needs the money to invest and hire.

"Just leave us alone and let us do our business and don't worry about raising taxes at this point," he says.

A recent survey of economists found that 54 percent support extending the tax cuts. So do Republicans. Democrats hope to bring a vote up on the issue before the November elections.

  • Anthony Mason
    Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"