Most of this round of stimulus does look to be relatively low bang-for-buck, and it is not paid for over ten years, but it does look to me as though it is better than a poke in the eye with a sharp stick.
It is important to realize that most of the money in this package is maintaining tax cuts in place that were scheduled to expire. This will prevent tax increases from having a contractionary impact on the economy, however there is very little, if any, net stimulus in this package compared with current levels of taxation and spending.
Larry Mishel of the EPI:
Who got what out of the deal is clear. The Republicans got tax cuts for the best-off two percent and lower estate taxes for the very wealthiest families, neither of which will do much if anything to create jobs.
President Obama won policies that will put or keep money in the pockets of the families of the unemployed and middle and low-income families, which will increase spending and create jobs. That’s what a payroll tax holiday for workers, unemployment benefits and the various tax credits will do: create customers for business and create jobs, which is our biggest need right now.
In two years, the American people will have a clear choice about who the tax code will favor. That debate will, I hope, highlight the hypocrisy of those wanting to deepen the deficit by extending tax cuts for the rich while simultaneously cutting health care, Social Security and domestic public investments in the name of deficit reduction.
So is this a good deal? It’s a lot better than I would’ve told you the White House was going to get if you’d asked me a week ago. There’s some new stimulus in the form of the payroll-tax cut and the expensing proposals. The older stimulus programs that are getting extended — notably the unemployment insurance and the tax credits — probably would’ve expired outside of this deal. The tax cuts for income over $250,000 are a bad way to spend $100 billion or so, and the estate tax deal is really noxious.
It’s bad news for the deficit, though the White House and Congress are right to make the deficit less of a priority than economic recovery. And speaking of that economic recovery? This isn’t enough, and it’s not well targeted. The … end result is between $200 and $300 billion more in tax breaks, tax credits and unemployment insurance than there would’ve been if not for this deal… That’s better than nothing — or to be more specific, better than backsliding.
Most of the money just keeps programs that are currently in effect from expiring, so in some ways, it would be more accurate to say that this money is anti-contractionary rather than stimulative. It’s important that the White House doesn’t repeat the mistake it made in the original stimulus and overpromise how much this will do for the economy. …
And finally, it’s something of a hopeful sign: The White House sat in a room with Republicans and Democrats and managed to negotiate an actual compromise. The final deal includes some things that Democrats will like and some things they won’t like, and it includes some things Republicans will like and some things they won’t like. But it’s a deal, and … if you want to be optimistic, this process suggests that the next two years might be a bit more productive than some of us have been predicting.
Maynard at Creative Destruction has the optimist’s take on the reported tax cut deal:
[T]he deal supposedly struck between Obama and the Republicans is not too bad and better than was to be expected. We give the rich about $60 billion a year, and in return get about as much economic stimulus, focused on low- and moderate-income people, as we could hope to get.
…I tend to agree. …
The outlines of the tax-cut negotiations have finally come into focus: basically, it’s a kitchen-sink approach where Republicans and Democrats all get the tax cuts they want. The Bush tax cuts get extended for people earning more than $250,000 a year — and unemployment insurance gets extended, along with various tax credits. On top of that, there’s a 2% cut in payroll taxes, and the reintroduction of the estate tax at the Republicans’ preferred level: 35% of estates over $5 million. There’s even a nice new tax deduction for businesses making new investments. This is tax cutting, Oprah-style: you get a tax cut! And you get a tax cut! And you! And you! You all get a tax cut!
This is clearly a win for the Republicans, who get everything they want for the rich. … Meanwhile, all the Congressional opposition to this deal is going to come from Democrats, who are basically being asked to sign off on exactly the same bill that George W Bush would have asked for, with a spoonful of unemployment-benefit sugar to help the medicine go down. …
My reaction is here.
Originally published at Economist’s View and reproduced here with permission.