Tax Cuts as Stimulus
There’s some concern out there about the extent to which the Obama stimulus plan that’s emerging in press accounts relies on tax cuts rather than public investments. It’s worth saying that there is a case on the merits for using tax cuts, namely that there’s something of a disjoint between the dollar figure that economists come up with when they try to calculate the level of stimulus needed by looking at national accounts data and the dollar figure that budget analysts come up with when they try to calculate the quantity of spending ideas that are (a) useful, (b) ready to go fast, and (c) genuinely involve only temporary spending commitments. That said, Will Straw and Michael Ettlinger did publish a paper for CAP called “How to Spend $350 Billion in a First Year of Stimulus and Recovery”.
But of that $350 billion, about $50 billion was tax cuts. And that’s a one year proposal. So our guys had $300 billion in spending and $50 billion in tax cuts in the first year. Obama has $300 billion in tax cuts and $475 billion in spending over two years. If you do some crude division, that’s $150 billion in tax cuts in one year (quite a bit more than our proposal) and $237.5 billion in spending in one year (close to our proposal). Which is to say that Obama’s team seems to me to be pushing close to the limits of what’s out there to spend plus adding a lot of tax cuts as gravy. Gravy that, it seems, they’re hoping will attract Republican support. And that I’ll believe when I see. It’s one thing to unveil a compromise as a result of a bipartisan negotiation, and another thing to unveil an opening bid that you say you hope conservatives can get on board with.
24 Responses to “Tax Cuts as Stimulus”
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January 5th, 2009 at 9:44 am
…and another thing to unveil an opening bid that you say you hope conservatives can get on board with.
headline you’re not likely to see “Senate GOP Blocks Tax Cuts”
January 5th, 2009 at 10:40 am
Why they do not ask for the moon and the stars I do not know. The republicans always ask for things that are abhorrent and sometimes get them. Because they asked for them.
No pretty girl went out with me unless I asked. Nothing ventured nothing gained.
January 5th, 2009 at 10:46 am
I think Obama is right on the strategy here. Tax cuts on the middle class now soften the blow of tax hikes on the rich later. Both of those actions are steps towards a less regressive overall tax structure. And the first is good for stimulus in the short term.
January 5th, 2009 at 11:32 am
This is a huge blunder. If the stimulus works, the right will insist that it was because of the tax cuts that they forced Obama to implement. If it doesn’t (which is a hell of a lot more likely), Obama will take the blame alone. Either way, Republicans win.
The ecomomics of tax cuts are bad right now, as well. $500 in the hands of consumers isn’t going to provide that much stimulus, but $300 billion in aid to the states could prevent a huge anti-stimulus from occurring as states slash budgets and raise sales taxes.
January 5th, 2009 at 11:43 am
I think this is smart. A stimulus is urgently needed so it has to be the first thing Obama focuses on, but it’s not part of his core agenda. Put something on the table that is good policy (though maybe not the best policy) and can be passed quickly (Republicans will put up nominal opposition, but they’re not going to walk away from $300 billion in tax cuts). If Obama can rack up a quick win, then he can gather momentum and move on to his higher priorities, such as health care, energy and more ambitious infrastructure.
January 5th, 2009 at 12:10 pm
<blockquote?It’s one thing to unveil a compromise as a result of a bipartisan negotiation, and another thing to unveil an opening bid that you say you hope conservatives can get on board with.
And that, my friend, is exactly why I’ve been tepid in my support for Obama. He’s more committed to “building consensus” rather than being committed to “effective policy” or other principles.
January 5th, 2009 at 12:48 pm
The idea of big tax cuts is that it will inject money into the economy much more quickly than investments in infrastructure. There just aren’t that many “shovel ready” projects out there that won’t take months or years to get rolling. If the tax cuts are truly directed at those on the lower end of the economic spectrum they will spend the money right away.
January 5th, 2009 at 1:00 pm
screw the damn republicans! they are not necessary here! Obama does not need them, one iota. this can be passed, easily, over GOP objections. there are a few Repugs who’s constituency would allow them to try to block this, but there are far too many people hurting right now for the Cons to successfully maintain a filibuster against a stimulus package.
unfortunately, its starting to look like we won’t actually be getting a stimulus package, just what ends up working out to more money for the already wealthy.
tax cuts never, ever help lower income people get out of their situation. you may, at the end of the week, have an extra $10 for bread. which is fine, but – big woop. considering that people have been hoping for massive, large-scale jobs programs and infrastructure rebuilding, its hard to even describe what a let-down this plan looks like.
awful, terrible, and the concept of caving to Republican wants before Obama’s even pres, before they’ve even had it out on the floor? what the hell is Obama doing here? what happened to his brain? so frustrating. people are asking for a New New Deal, and he hears “more tax cuts”. guck.
January 5th, 2009 at 1:03 pm
to #10 above – the problem is that, well, what you describe is always the situation! none of these projects will be ‘ready to go’ until there is funding for it, a name for it, and an expected date to begin it. this seems like a great kicking of the can down the road – something Obama specifically talked about not doing. and its his first god-damn move! tax cuts are just money thrown away. i get $500, it helps me pay bills for a month or two, its gone, debt is higher, and my situation is still exactly the same – except that the government has that much less money overall. how many rounds of this do we need to experience to realize it does practically nothing useful?
January 5th, 2009 at 1:34 pm
Jay is right: the tax cuts are wrong economically and politically. In a market meltdown like this, individuals are too uncertain and too vulnerable to undertake new enterprises. If you give them money they will just sit on most of it, and rightly so. We need direct government spending now.
On the political side, I am concerned that giving the Republicans another tax cut just adds more legitimacy to their myth that tax cuts are always good, which means that tax increases are always bad. If Obama goes along with their knee-jerk demands for tax-cuts he will simply be adding his own prestige to their philosophy. The conservative taboo against government regulation of finance is now bust; let’s take the last step and repudiate their worship of tax cuts as well.
January 5th, 2009 at 1:49 pm
re: In a market meltdown like this, individuals are too uncertain and too vulnerable to undertake new enterprises.
Depends what the tax cuts are and who they are going to. Rich people may well sit on a tax cut windfall, but a lot of people are living in very straightened circumstances and will spend any extra cash you give them. One of the biggest stories of this downturn has been the collapse in consumer spending. This is sometimes spun as people saving instead of spending, but for a great many people it’s a matter of not having enough money to spend even on things they need.
January 5th, 2009 at 2:36 pm
When Cheney said “deficits don’t matter”, he was mocked. Now Obama is about to take this country further into the red than ever before. Expect not a peep about this from the usual sources.
It would be funny if Obama faces a primary challenge from Hillary in 2012 on this issue, with her pointing out that when she was in the White House with Bill, there was a budget surplus.
January 5th, 2009 at 4:06 pm
^^^^^^^^^^ Doesn’t realize we’re in a serious recession.
January 5th, 2009 at 6:53 pm
Barack has the votes he needs from Dems plus one or two scared Republicans. Attracting Republican support is about making it harder for them to criticize him if we still have bad economic times over the next two years. The best strategy for the Republicans would be for Obama to barely pass his plan and for it not to produce immediate results. Including tax cuts may make that hard for them to execute on.
January 5th, 2009 at 7:47 pm
Craig, remember when a bunch of Democrats supported the Iraq War in order to make it tougher for Republicans to criticize them on foreign policy?
January 6th, 2009 at 10:26 am
Why is CAP’s analysis a defacto ceiling? State and local gov’t cuts have grown since then, for example. Am I missing something here?
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