Tax Deal Could Be Second Stimulus; And What Happened To The Deficit Hawks?

by Stuart Shapiro

Much angst has been spilled over President Obama’s deal with Republicans on tax cuts.  Let me repeat what I said last week, a deal should never have been necessary because this should have been resolved this summer (and Pelosi and Reid share much of the blame for not getting it done).  However, given that the tax cuts were going to get extended, either now or next month, how was the deal?  David Leonhardt calls it a second stimulus:

What actually seems to be happening: Democrats and Republicans agree to extend all the tax cuts and also agree to an extension of unemployment benefits, a cut in the payroll tax and, according to my colleagues, “continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.” The amount of money pumped into the ailing economy: about $900 billion over years.

Steve Benen is a bit more guarded.

I’m reluctant to go too far down this road — a real stimulus would include a hearty dose of additional infrastructure spending, for example. What’s more, some of these provisions may be stimulative, but there are easier, more efficient ways of using these funds to improve the economy.

But for all the recent talk about deficits, debts, and austerity, this agreement effectively ignores all of those concerns, and finances the entire deal by adding to the deficit — which I think is quite wise under the circumstances.

I think this is exactly right.  Of course, let’s appreciate the irony.  If the voters were demonstrating their worry about the deficit on November 2, the president and the Republicans are blatantly ignoring them (and don’t think Michele Bachman hasn’t noticed!).  Of course, that’s not why the voters voted the way they did.  They want a better economy and this package will get us there (at least in the short term).  If it passes.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.