By Mark Zandi
Unless Washington acts, we all will pay more in taxes next year. Few think that's a good idea, but there is little consensus on how to change it. President Obama has proposed freezing tax rates for everyone making less than $250,000 a year. His GOP opponent, Mitt Romney, wants not only to include high-income households in the freeze, but also to cut rates further. Who is right?
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Before I answer the question, consider some history. President George W. Bush cut tax rates on personal income just before Sept. 11, 2001, to stimulate the economy after the technology-stock bubble burst. It's hard to believe now, but the federal government then was running a budget surplus and the nation's debt was shrinking. The president thought we could afford the tax cuts, but agreed to let them expire at the end of the decade just in case we couldn't.
Some supporters thought the lower tax rates would spur much stronger economic growth, and a few even hoped there would be so many new, high-paying jobs that tax revenues would actually increase, despite the lower rates.
There is no evidence that this happened, however.