U.S. tax deal puts austerity on back burner

December 7, 2010

Fiscal austerity may be coming to America, but it probably won’t be arriving any time soon. President Barack Obama and Republican leaders have agreed to some $1 trillion of economic stimulus over the next two years, mostly in the form of tax cuts (or non-increases). If the package makes it past Congress—and especially past Democrats—the message will be that, for now, Washington is going for growth.

If only by accident, the politicians seem for once to be doing at least some of what many economists are recommending, including Federal Reserve Chairman Ben Bernanke. While America has longer-term deficit and debt problems, they argue now is the time for stabilizing the economy and planning ahead rather than cutting. With unemployment high, the more immediate concern is boosting a flaccid economy that has yet to find its legs a year and half after the last recession officially ended.

The latest compromise may help do that, and crucially it has a realistic shot at passing Congress. Earlier this year, the Congressional Budget Office rated a list of short-term stimulus options by their ability to boost growth and jobs. It turns out many of the best options are in the deal reached by Obama and the Republicans: a 13-month extension of unemployment benefits; a one-year reduction in employee payroll taxes; and allowing full deduction of business investments in 2011.

That said, the heart of the package is in a form that may provide little near-term oomph, according to the CBO’s models. That’s the two-year extension of President George W. Bush’s 2001 and 2003 labor and investment income tax reductions, at a cost of $500 billion in lost revenue. But Republicans were never going to budge on that. Besides, letting those taxes go back up could have dented such economic growth as there is.

Of course, congressional Democrats could scuttle the deal. Some are steaming about Obama’s agreement to extend the Bush tax cuts for the wealthiest taxpayers as well as the middle class—rewarding Republicans, as some see it, for intransigence. But time was against Obama if he wanted stimulus in any form, and he may be betting that the hoped-for positive impact on job creation will silence grumblings in his party.

Comments

The proposed deal is the worst idea I would have imagined possible. Democrats are conceding to tax cuts and Republicans are conceding to not go after spending cuts. Everyone is a hypocrite in this.

Posted by Fellowes | Report as abusive
 

Let’s speed up he patent process to spur innovation and jobs, consider a flat/fair/simplified tax because of widespread tax evasion and waste, cosider splitting many lower skilled/high paying public sector jobs into two and consider mandatory part time work for those living 100% off government! Combine this with spending cuts and the growth and we might begin to knock off the dficit and balance a budget one day!! The debt will have to wait and is costing us dearly-what we could have done with the money!! Asking what your country can do for you should not be our motto!! Thanks!

Posted by DrJJJJ | Report as abusive
 

You must read, how to sell a junk car quick….what jobs, where will they be…do our high schooltudents pick fruits and vegetables in 100 degree temperatures, will they? you are a fruit cake and Obama sold out without pretending to put up a fight. not many democrats will vote for him in 2012, he is a one term flop or “s…” he couldn’t beat Boehner in hop scotch nor would he try. The pretend middle class have just dropped off the OBAMA and Republican radar screen… you are a trickle down “a..”

Posted by jont | Report as abusive
 

This tax deal reminds me of how compromise goes in my house… I want the heat in the winter set at 65F, while my wife wants it set at 70F, so we ‘compromise’ and set it at 70F.

The Senate should absolutely refuse to let this fiscally irresponsible monstrosity through, since the President obviously won’t veto it. Forget the unemployment extensions and let ALL of the Bush tax rates expire as they were meant to do when they were given the 01/2011 sunset deadline. Let’s go back to year 2000 rates… back when the budget was running a surplus and the national debt was under $5 trillion and headed downward.

Invest the ‘extra’ (like there will be any when the republicants in the House finish the budget months late) here in the US, creating green jobs. You know, just like other countries have been subsidizing their industries while they stole millions upon millions of our jobs?

Posted by Darr247 | Report as abusive
 

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