(Community Matters) factoring payroll tax cuts and business tax credits into the wins of the compromise (continued unemployment insurance and middle class tax relief) is causing me to chill and read independent economists’ assessments. The former two additions could be huge stimulus boosts to our anemic economy – exactly what we need to create some damn jobs. As imprudent as extending the tax cuts for the wealthiest is . . . still trying to understand this moving target
see this Economist blog posting
subsequent comments: Originally I found the compromise as distasteful as did other progressives. However, as economists and The Economist are now noting, the compromise includes several provisions which we’ve been wanting but have been unable to obtain otherwise (in addition to extension of middle class tax cuts and unemployment insurance) – additional, significant economic stimulus measures via a decrease in payroll taxes and an aggressive biz tax credit. They are expected to give our anemic economy a much needed boost, creating jobs for unemployed Americans.
It appears Pres Obama finally obtained what nobel-winning economist Paul Krugman has been calling for since 2009, more economic stimulus. Even the Wall Street Journal, the New York Times & the Economist think so. I’ve gone from a very loud opponent of the compromise to a cautious supporter
Community Matters 
Eugene,
From my admittedly non-economist perspective, I’m not finding these analyses convincing. Here are a few of my questions, none of which, as far as I can tell, are answered by the Economist’s rosy interpretation.
1. The tax cuts for the wealthy have been in place since 2001. Since they have not turned out to be the source of unending job creation that we were promised, what reason is there to think that will magically become the case in the next two years? Also, weren’t business taxes cut as part of the first big stimulus package? What’s that quotation by Einstein about doing the same thing again and again and expecting a different result?
2. Why is a reduction in payroll taxes a good idea? Won’t that exacerbate the Social Security/Medicare shortfall? It would be nice to have a few extra bucks in my pocket, but I’d rather have the social safety net in place when I need it. (Of course, we could take care of this by raising the limit on which withholding taxes are assessed from $90K to, say, $250K, but that’s about as likely to happen as Mitch McConnell being named People’s sexiest man alive.)
3. We’re basing all this optimism on projections from Goldman Sachs, J.P. Morgan, et al., the folks who brought you the Great Recession? Really? I especially like the idea that GS–which foresaw the catastrophe and, rather than warning the country about it, figured out how to make money from it–can be trusted to tend to anything but its own naked self-interest, in the purest, starkest terms. In fact, I now assume that if Goldman thinks something is a good idea, it means that the rest of us can expect a thorough, excruciating reaming.
4. Last question: There’s no Plan B. What happens if the unicorns and rainbow fairies sprinkle their supply-side pixie dust and yet jobs and economic nirvana stubbornly refuse to appear? Then we’re down $700B with nothing to show for it. And then the blood-letting will begin in earnest, because at that point there will have to be savage cuts in all parts of the federal budget, including Social Security, Medicare, and defense. What then, Goldman Sachs?
Thanks for following the tax-cut compromise closely. Every time I try to go near it, I feel my life force draining away. And if you know of any sources or analysts that address my questions, I’d love to read them (please, nothing more from Goldman).
Cheers,
Kip
“following the tax-cut compromise closely. Every time I try to go near it, I feel my life force draining away.”
Same here. This is the most depressing news out of Washington in years. I’m considering a moratorium on reading news to maintain my mental health.
Why did we vote for Obama, again?
P.S. It seems obvious that supply-side economic stimulus is not needed in a time of high unemployment, empty office buildings, and extremely low interest rates. We have plenty of supply. Plenty of capital, plenty of capacity. What we need is demand-side stimulus.
Thanks, Kip. I didn’t mean to infer that I consider the tax cut extensions as components of the economic stimulus measures (though increased taxes are – from what I’m reading – fairly widely believed to be the reverse).
As to the SS taxes, agreed, just a short term measure but the aggregate spend from any reduction in taxes withheld on middle class is pretty big. This definitely a stimulus measure (safety of SS completely another matter which we’ve got to deal with). Same the business investment tax credit.
I was disappointed to read Krugman’s latest editorial, especially after his one earlier this week – it is one of the pieces that made me stop and reassess the compromise. I’m having lunch on Tuesday with an esteemed and very successful economist. Not sure I’ll be able to post his assessment of all this, but of course we can talk about it privately.
Don’t misunderstand me; I’d rather there not be an extension of tax cuts for the “wealthy,” sorta a silly term because even folks like Steven and I lumped into this and we’re certainly not wealthy. Nevertheless, I am led to believe Obama has made lemonade out of lemons.