Feldstein and the President Publicly Clash Over Ending Tax Breaks for the Wealthy

John McKinnon reports on a public debate between the President and two of his outside advisors – Martin Feldstein and William Donaldson – over the President’s proposal to let the Bush tax cuts for the wealthy expire:

When Harvard professor Martin Feldstein’s turn came to talk, he suggested continuing the current tax rates for two years for everybody, then ending them. He said that course would bolster demand at a time when the economy is weak, and also would reduce the long-term federal debt that Obama projects. When Harvard professor Martin Feldstein’s turn came to talk, he suggested continuing the current tax rates for two years for everybody, then ending them. He said that course would bolster demand at a time when the economy is weak, and also would reduce the long-term federal debt that Obama projects. William Donaldson, a former chairman of the Securities and Exchange Commission, then offered similar suggestions, saying that confusion over future tax policy is adding to business uncertainty.

The President needs better advisors than this. Donaldson’s argument that business uncertainty is retarding economic recovery strikes me as Tea Party propaganda but then Donaldson is not an economist. Feldstein is. The difference between the President’s and Feldstein’s policy positions centers on whether we should extend the tax cut for the wealthy for another two years. Does Dr. Feldstein really believe that a temporary tax cut for the wealthy significantly increases consumption demand? I’m sure most of his students at Harvard have heard of the life-cycle model of consumption and the Barro-Ricardian equivalence proposition!