Obama adviser warns against tax cuts for wealthy

WASHINGTON Tue Aug 31, 2010 4:10pm EDT

WASHINGTON (Reuters) - Temporarily extending tax cuts for the rich opens the door to permanent tax cuts and that is something the United States cannot afford, an economic advisor to President Barack Obama said on Tuesday.

Jason Furman, deputy assistant to the president for economic policy, said a proposed short-term extension for the rich that some economists have advocated would put the country on a slippery slope it would be tough to pull back from.

"There is a concern that (if) you extend those tax cuts for even a year, and that is a way to get a foot in the door ... and make them permanent," he told an event in Washington on the impact of tax policy on families.

Republicans want to extend the lower rates for all income classes.

Some economists and conservative Democrats point to the economy's lackluster recovery to argue for extending the cuts for the wealthy on a temporary basis, such as one year.

The lower tax rates, enacted in 2001 and 2003, will expire at year-end unless Congress acts to extend them.

Obama and fellow Democrats support renewing the lower rates for the bulk of Americans, about 97 percent, but letting them rise for individuals making above $200,000 and couples making more than $250,000.

The Obama administration has forcefully argued in recent weeks that the country can simply not afford the $700 billion 10-year price tag for extending the historically low rates of the richer classes.

"There are compelling arguments that Democrats may want to consider it, but the White House is too far down the path of making the case that it would be irresponsible" to change its stance now, said Sean West, an analyst at the risk consulting firm Eurasia Group.

The Senate is expected to take up the issue when it reconvenes next month. Many don't expect action before November congressional elections, where the issue is sure to be on voters' minds.

"There is no clear sign that either side has won the argument yet," West said.

Two recent polls put the issue in Obama's favor. Surveys by CNN and CBS found majorities favoring the Democratic stance, while a Reuters/Ipsos poll found voters favoring the Republican position.

A poll this week by the National Association of Business Economics found 54 percent of that group back extending all the lower rates, while about 45 percent favored either letting them all expire or just extending them for the so-called middle class and under groups.

(Editing by Maureen Bavdek and Todd Eastham)

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