Obama advisor predicts hard road for extending all Bush tax cuts

“Every objective observer that looked at what would the impact of those tax cuts be on the economy said they have the absolutely lowest bang for the buck of any government policy,” he told MSNBC. “So I don’t think there is any question that the president has not been keen to spend the money on that.”

Obama supports extending the Bush tax breaks that benefit individuals earning less than $200,000 and couples making less than $250,000 per year, while letting the higher rates reset to pre-2001 levels. 

Economists on both sides of the aisle say wealthier taxpayers already have disposable income and that extending their tax breaks would do little in provoking them to spend more. Extending the tax breaks for lower- and middle-class taxpayers, however, whose disposable income has largely vanished this recession, will provide them the funds to shop.

But a recent Gallup poll showed that the wealthy are the only ones spending in this economy — its June report showed spending increased 33 percent for people earning at least $90,000, from $109 per day in April and May to $145 per day in June. Spending levels remained a constant $59 per day over this three-month period for individuals earning less than $90,000.

The findings by Gallup occurred months before the expiration of the tax cuts, which is scheduled to take place at the end of December. 

The poll’s results raise the question, if Congress allows the tax cuts for the wealthy to expire, will it essentially stop the only spending that is taking place in the economy?

Democratic strategist Douglas Schoen told The Hill last week that Democrats need to look beyond their philosophical opposition to extending the tax cuts for the wealthy and continue them, at least through 2011. 

“There is a reluctance from the administration and a lot of Democrats to do what I think is prudent, which is extend them and not to take the risk of stifling growth, stifling job creation, in the midst of a crippling recession,” he said, adding, “The problem is, while [extending them] is practical and logical, in terms of economic policy, a lot of people in the Democratic base are adamantly against it.”