Tax Cuts vs Stimulus

In this morning’s NYT, David Leonhardt slices through all of the political wrangling about the tax deal to the heart of the economic matter: “Mr. Obama effectively traded tax cuts for the affluent, which Republicans were demanding, for a second stimulus bill that seemed improbable a few weeks ago.

The two parties got a lot of what they wanted. The Republicans extended the high-end Bush tax cuts; they also put together an estate tax plan they were comfortable with. The Democrats got extended unemployment benefits, and a cut in payroll taxes, along with tax credits for college tuition.

The tax and spend package pleasantly surprised some Democratic wonks:

“Left-leaning policy experts said the package did more to create jobs than they had thought possible after the Republicans’ midterm election victories. Robert Greenstein, Lawrence Mishel and John Podesta — who run prominent Washington research groups that range from liberal to staunchly liberal — all offered praise for the package. Of its estimated $900 billion-plus cost over two years, roughly $120 billion covers the high-end tax cuts and the estate tax cut, $450 billion covers Mr. Obama’s wish list and $360 billion covers the tax cut extensions both parties favored.”

Just as the original stimulus was too small to counteract the effects of the credit crisis, so to, this will be too small to fully do the job for the broader economy. I would have preferred a full payroll tax holiday (6.2%) for the year. And i would also have liked to see a temporary exemption and reduced tax rate for repatriation of overseas monies held by US Companies.

In terms of the stock market, it is likely the assist that Ben Bernanke has been pleading for since Jackson Hole . . .


In Obama Tax Plan, a Boost for Jobs
NYT, December 7, 2010

See also:
Just How Stimulating Is the New Tax Cut-Jobless Benefit Deal? (Economix)

Tax Cuts May Spur Economy, Limit Need to Extend Fed Purchases  (Bloomberg)

Package Would Give Obama Stealthy Stimulus  (WSJ)

Tax deal and spending plan face a hectic finish for Congress (Washington Post)

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