Just a little over a month since leaving the Obama administration, former White House budget director Peter Orszag broke with his former boss in an op-ed for the New York Times on Tuesday and called for a two-year extension of the Bush-era tax cuts scheduled to expire at the end of the year.
While Orszag said that President Barack Obama's plan to only extend the middle-class tax cuts would be ideal, he noted that it may be necessary to extend the high-income tax cuts in order to reach a deal in Congress. However, Orszag said that the tax cuts should be ended altogether after two years.
Orszag wrote, "Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned."
"Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt," he added.
Orszag also noted that the markets don't currently seem to view the budget deficit as a problem, with the yield on the benchmark ten-year note near its lowest level in over a year, although he acknowledged that the bond market won't remain benign if the U.S. fails to tackle its long-term fiscal problem.
"What's more, losing the confidence of the bond market could prove painful, since it is widely known that our fiscal trajectory is unsustainable and market sentiment may therefore shift quickly and unpredictably," Orszag wrote.
He added, "In any case, as the economy recovers, the dominant problem will move from depressed demand to excessive budget deficits."
With lawmakers set to return to Washington next week, the debate about whether or not to extend the Bush tax cuts is likely to heat up going into the midterm elections in November.
Most Democrats seem to favor allowing the tax cuts for the wealthiest Americans to expire, but they may be forced to accept a compromise plan like the one laid out by Orszag in order to avoid public backlash in what is already excepted to be a tough election season.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.