Non-partisan report sees no harm in tax hikes for wealthy

WASHINGTON (Reuters) - Letting tax rates for the wealthy rise will not put a short-term damper on the economic recovery, according to a report by the non-partisan research arm of the U.S. Congress.

The study by the Congressional Research Service is likely to be used by Democrats in the looming battle over whether to extend tax cuts originally enacted during the administration of President George W. Bush when they expire at the end of the year.

Republicans want the cuts continued for all income groups while Democrats favor letting them expire for the most affluent Americans.

"If the economy is still weak, a temporary extension (of all the rates) will not harm the economy," despite adding to the deficit, the CRS report said, citing CRS economist Thomas Hungerford.

But allowing the rates to rise just for the wealthy could help "reduce budget deficits in the short term without stifling the economic recovery."

The non-partisan Congressional Budget Office, a separate budgetary arm of Congress, has said letting all the tax rates rise could push the economy back into recession, but it did not break down the impact of letting the rates expire for different groups of income earners.

(Reporting by Kim Dixon; Editing by Fred Barbash and Eric Walsh)