Did Peter Orszag Really Break from the Administration’s Position on Expiring Tax Cuts?

September 7, 2010

Headline writers, journalists, and bloggers are in a frenzy today over former OMB Director Peter Orszag’s supposed disagreement with his former boss (Pres. Obama) over what to do about the expiring Bush tax cuts. But a closer look at what Orszag wrote in the New York Times today suggests he’s merely ranking his policy preferences in a set with more than two options (and the concept of second-best). Here’s what Orszag says:

In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

So let’s summarize. Orszag’s ordering of policy preferences for short-term tax policy (next year):

(1st choice) Extend only tax cuts for those making less than $250,000 (Obama position)

(2nd choice) Extend all tax cuts (Republican position)

(3rd choice) Allow all tax cuts to expire on Dec. 31

If you asked Obama privately what his ranking of these three options was, he’d probably agree with Orszag. So is there really a story here about Orszag disagreeing or breaking with the administration?

If anything, Orszag is even more of a “tax-hiker” than Obama because in the article, he later goes on to argue that in a few years (once the economy recovers), all the tax cuts should be allowed to expire in order to address the long-term fiscal problems the federal government is facing. Obama favors extending most of the tax cuts permanently.

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