If the deficit goes down too fast, unemployment goes up

If the Bush tax cuts expire on schedule,? the drag to the still-too-weak economy from the reduction in after-tax income would mean less buying power for a lot of families and that would send the unemployment rate back up past 9 percent.

The CBO budget update from the other day makes a good, simple point, one ignored by the austerity merchants: if we try to get rid of the deficit too quickly, we will make the jobless situation worse.

Skip to next paragraph Jared Bernstein

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Before joining the Center on Budget and Policy Priorities as a senior fellow, Jared was chief economist to Vice President Joseph Biden and executive director of the White House Task Force on the Middle Class. He is a contributor to MSNBC and CNBC and has written numerous books, including 'Crunch: Why Do I Feel So Squeezed?'

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The CBO estimates the path of the deficit if all the Bush tax cuts went bye-bye on schedule at the end of this year (current law baseline; the alternative minimum tax would also whack a lot more middle-income people).? Taxes would go up and the deficit would go down.? But the drag to the still-too-weak economy from the reduction in after-tax income would mean less buying power for a lot of families and that would send the unemployment rate back up past 9% in their model by 2013.

This is very unlikely to happen. ?The President plans to let the sun set on the highend tax cuts at the end of this year, while preserving those for households with incomes under $250K.? The highend cuts represent about a quarter of the whole package and they target those who are less income constrained to start with, so I wouldn?t expect them to have anywhere near the effect of the full sunset.

The Bush tax cuts are the main driver of the medium term budget deficit and ultimately, they should all phase out. ?But we need to be mindful of the timing.

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