CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Tax Deal and Stimulus

The Tax Deal and Stimulus

Print
Tuesday, 07 December 2010 03:47

The NYT reported that the cost of the compromise on extending the Bush tax cuts will be approximately $800 billion over two years. It notes that this amount is similar to the cost of President Obama's stimulus package.

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.

Comments (16)Add Comment
...
written by gravy, December 07, 2010 4:11
The article says 900 billion over 2 years. This will add to the cash sitting on the sidelines, undermine social security since they will want to extend the payroll tax holiday when unemployment hits 10%, etc etc. This is a disaster in many ways.

The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing long-term fiscal imbalances.
...
written by Calgacus, December 07, 2010 6:25
The payroll tax cut money and the unemployment insurance won't sit on the sidelines, and retaining the SS tax cut would be great, as long as it doesn't become fodder for an assault on SS. Of course the filthy lucre retained by the greed-crazed sociopathic parasitic oligarchs will do little good for anyone, but could have been worse. The oligarchs still fear turning us into Ireland, Greece or Latvia, I guess.
...
written by eRobin, December 07, 2010 6:47
The payroll tax is paid for from the general fund for now but I share your concerns going forward. It won't help enough and costs too much. It will further deepen income inequality and worsen the instability of our economic system, while entrenching a political system that is hurting us more than helping us.

I'd like to hear what Dean thinks about it. Maybe there are real silver linings b/y the silly "both sides agreed and both sides hate it so it must be good," which is what I'm reading other places.
Trickle Down
written by bakho, December 07, 2010 7:02
More Trickle Down: Life under the urinal waiting for those precious drops of moisture.
...
written by rickstersherpa, December 07, 2010 7:13
I am sure that this is not the stimulus that Dean Baker, Paul Krugman, and Joseph Stiglitz would have put together. I would have preferred that one. However, I don't think such a plan would get 50 votes in the Senate (where Wyoming has the same number of votes as California, or Texas. or New York. Between the rural/resource exporting states Democratic Senators and the 42 vote Republican block, I expect that this is the most that could be gottenn through. And though, and with the exception of the 2% pay roll tax cut, it is for the most part a continuation of stimulus measures already present, it is far better than a 900 billion dollar austerity tax increase in 2011 and 2012.

I do hate the estate tax compromise.
...
written by rickstersherpa, December 07, 2010 7:34
A statesman is a politician who first gets elected. Obama will run again in 2012. As Dean, PK, Nouriel Roubini, Marshall Auerback, and Joseph Stiglitz state most of this deficit talk is meaningless when you have 9.8% U3 and a near 18% U6. Much of the deficit will close if unemployment can drop significantly. If Calculated Risk is right about the housing market, and I find him/her more prescient than anyone on this subject, it should finally be rebounding in 2012. If that is happening, and the economy is growing and adding jobs, Obama will be able to run on a successful economy (sometimes in spite of the things he, Geithner, and Summers did or did not do). I would prefer his reelection over any foreseeable Republican candidate. I would prefer the Democrats maintain control of the Senate. I would prefer they win back the House. Let the ecomomy strengthen and begin growing again, and then, in a sound Keynsian, counter-cyclical move, let the all the tax cuts expire at the end of 2012, and then address the deficit and the tax code, hopefully from a position of negotiating strength. Revamp the tax code on a more progressive wider basis, but one that would include both a VAT and a carbon tax (I think PK has a strong argument that the VATs in Europe and Japan make the politics of socially progressive Government spending easier).
...
written by Calgacus, December 07, 2010 7:50
For Dean's take, see In Defense of Giving Money to Rich People - or just read the title. The payroll tax cut coming out of the general fund is great, should be continued to replace the grotesque overtaxation for the SS trust fund. (Would have been a lot better to have kept it on pay as you go instead of having the 1980s Greenspan tax hike) There's no inflation on the horizon. There is no other conceivable negative effect of deficit spending by a monetarily sovereign government like the USA. Time to have a 2 trillion dollar deficit; of course making mindless rich people richer is not a good way of using some of it, but that's life.
...
written by Calgacus, December 07, 2010 7:52
...
written by Daniel, December 07, 2010 8:46
For GOP 2-year extension is in fact better deal than making them permanent right away. This way for 2012 elections they can milk more money and support from their rich donors, scaring them into believing that Dems will kill the tax-cut. Also the fade of payroll tax-cut in 2012 will help economy stalling, if it even starts recovering by then. Again, Reps played this beautifully.
This is no Time to Tax Anything: Real Keynesians Starve the Beast
written by izzatzo, December 07, 2010 9:00
As a student of Keynes and Grover Norquist, Senator McConnell in particular understands that tax increases suppress spending from the demand side to make the recession worse, just as he understood that the Bush tax cuts paid for themselves with more investment spending from the supply side.

Taxing is a version of moral hazard theft based in political democracy. It makes robbery of the productive class legal because it's free to implement.

Just get elected and go at it, promising underpriced, subsidized health care, retirement and other socialism to the masses, extracted from the very ones who produce it, who then stop producing it and cause the deep recession we're in.

Stimulus spending is particularly cruel because it ends up making the unemployed worse off with even more unemployment. Thank God for real Keynesians like Senator McConnell and Grover Norquist who understand there's never a good time to tax anything.

Stop the taxes and the beast will starve on its own as private spending rises up to crowd out government spending from both the supply and demand side, and restore the economy to full employment.
gucci
written by gucci outlet, December 07, 2010 9:01
For Dean's take, see In Defense of Giving Money to Rich People - or just read the title. The payroll tax cut coming out of the general fund is great, should be continued to replace the grotesque overtaxation for the SS trust fund. (Would have been a lot better to have kept it on pay as you go instead of having the 1980s Greenspan tax hike) There's no inflation on the horizon. There is no other conceivable negative effect of deficit spending by a monetarily sovereign government like the USA. Time to have a 2 trillion dollar deficit; of course making mindless rich people richer is not a good way of using some of it, but that's life.
I like the FICA cut
written by jwo, December 07, 2010 10:36
I would rather it be much bigger but I like the FICA cut, it will help people pay down debt and shore up their net worth. I think and hope that It will be be paid for by capable people through a future reduction in top earners benefits. IMO we should Welfarize SS and this is a step in that direction.
Why so many champions for Social Security "reform"?
written by Ron Alley, December 07, 2010 11:08
Wake up and smell the coffee. Any of the means test social security reforms you suggest will greatly increase the intrusiveness and administrative costs of social security. Raising administrative costs will tend to result in increase FICA taxes or further demands for benefit cuts.

The biggest shortcoming of the tax "compromise" is that it does not appear to deal with the debt ceiling issue. This omission will just give Republicans another opportunity to obstruct, and perhaps even revisit and renege on the unemployment benefits
Investing is spending, paying down loans is saving
written by jwo, December 07, 2010 11:20
@Calgacus,
I hope that I am not being rude or pedantic but in an economic sense investing is spending and paying down loans is saving. So the SS tax cut might increase saving more than a tax cut for the rich but in the current circumstances I think that helping people save more would be good.
...
written by Calgacus, December 08, 2010 2:02
Jwo - huh? I think there is universal agreement among all economists that an SS tax cut will lead to less saving than a tax cut on the rich. Poorer people will spend the money if they have to.

If they pay down loans, good. Better than bankruptcy. And any Keynesian would say that at a time like now, more saving is not good - the paradox of thrift - it reduces demand, GDP and employment.
Bears Eat Bulls
written by Rich Hodde, December 13, 2010 1:39
Could you provide data to support your statement that, "This will prevent tax increases from having a contractionary impact on the economy"? I have yet to see any hard evidence that letting the Bush tax cuts expire for people earning over $250,000 will have a significant negative impact on our economy.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives