James Pethokoukis

Politics and policy from inside Washington

Obama’s CEO Meeting: the Uncertainty Principle lives!

Dec 15, 2010 22:46 UTC

So the POTUS met with a bunch of CEOs:

President Barack Obama, trying to improve strained relations with the corporate world, prodded America’s top business executives on Wednesday to spend more money to boost U.S. hiring and the economy. ”We focused on jobs and investment and they feel optimistic that, by working together, we can get some of the cash off the sidelines,” Obama told reporters after spending more than four hours with 20 company leaders to discuss job creation.

Obama wanted to pick the brains of America’s business executives, and he estimated they were sitting on around $2 trillion that could be deployed to employ more U.S. workers. The meeting with corporate bosses, including Jeffrey Immelt, chief executive of General Electric Co, and John Chambers, chief executive of Cisco Systems Inc, took place as the U.S. Senate passed tax cuts sought by companies.

A few thoughts:

1) Is is demand or uncertainty? Well, we just ran a 2-year experiment where we flooded the economy with economic and monetary stimulus while at the same time wrecking business incentives via tax and regulatory threats. The results have not been pretty.

2) Obama’s meeting with CEOs is itself evidence that the White House also believes that it has negatively affected business attitudes which has increased their caution. This also why they have been trying, unsuccessfully, to find a CEO to replace Larry Summers.

3) Here is a fun fact: In 2007, a year the economy grew 1.9 percent, there were 250 IPOs raising some $60bln. Although the economy is growing faster than that this year — and despite a big IPO backlog — IPOs activity is only half what it was in 2007. That goes right to the issue of animal spirits.

4) There’s a rich vein of academic research supporting the premise that policy uncertainty can paralyze the private sector. America’s Great Depression may have been extended thanks to “regime uncertainty,” or the New Deal’s avalanche of regulation and taxes. Federal Reserve Chairman Bernanke offered a similar explanation for poor U.S. economic performance in the 1970s. In his MIT thesis, Bernanke partly blamed the decade’s weak business investment on “uncertainty” about long-term domestic policy, concluding that “caution is the order of the day for investors.”


Another fine column, James.

It’s not clear, at least to me, whether Mr. Obama has truly absorbed the lessons of the recent mid-terms OR if he’s just play-acting. Time will tell, I suppose, but I find it hard to believe that Bill Clinton hasn’t had a chat with Mr. Obama – especially after this tax cut business – about political reality and the need to go with the flow.

Posted by Gotthardbahn | Report as abusive

Obamacare doesn’t ‘bend the curve,’ it just breaks the law

Dec 14, 2010 02:28 UTC

Instead of “bending the curve,” Obamacare broke the law. Not only is the new healthcare law fiscally unsustainable, it’s unconstitutional — at least according to a U.S. judge in Virginia.

In the end, of course, it will likely be the Supreme Court that determines the constitutionality of a key piece of President Barack Obama’s healthcare reform. If the majority should rule that Americans can’t be forced to buy insurance or face a fine — as the law would require — the entire plan could implode.  But whichever way the high court rules, the massive overhaul will itself need an overhaul, if not a complete scrapping, if America is going to get healthcare spending under control and prevent it from bankrupting the U.S. government.

While the White House is certainly displeased with the Virginia court’s ruling, the result could have been far worse. U.S. District Judge Henry Hudson said that while the mandate itself was unconstitutional, the finding didn’t infect the rest of the law, which could continue to be implemented. Trouble is if the Supreme Court eventually finds the individual mandate portion unconstitutional, Obamacare could still easily unravel.

Much of the reform is built around a simple tradeoff. Insurers are required to accept everyone who applies. In return, everyone has to buy a policy. While this means insurers have to accept folks with expensive pre-existing illnesses, they are theoretically compensated with more customers, both sick and healthy. But without the individual mandate, an adverse selection problem emerges — only sick people currently lacking coverage would have an incentive to seek insurance.

Jonathan Gruber, a healthcare economist at Massachusetts Institution of Technology and government adviser, calculates that such a scenario would reduce the law’s gain in insurance coverage by more than two-thirds — 80 percent of people without insurance would remain that way — and force companies to raise premiums on individuals by 40 percent. As he puts it: “Without the individual mandate, the entire structure of reform would fail.”

In short, the U.S. healthcare system would get even pricier while still leaving vast numbers of Americans without insurance. A more expensive system would mean government healthcare spending would rise even faster.

Even if the White House overturns the Virginia ruling, the system would still require major reform. A detailed review of the law’s fiscal impact by Obama’s own chief healthcare actuary predicts it will save less than originally envisioned. The increase in long-term Medicare hospitalization outlays, for instance, is still scheduled to double to 4 percent of GDP from under 1.7 percent currently. A preliminary forecast estimated the increase at as little as 30 percent.

So even if the law should meet the standard of constitutionality, it fails another standard — of sustainability. And there’s no court of appeal for that.


1. Auto insurance mandate !

Under historical interpretations of the Constitution, Congress can dictate the economic activity of citizens so long as that activity will have profound, large-scale effects on the national economy.
2. Health insurance protects you PLUS all !
** Inaction cost, $9trillion over the next decade, ((Some of CBO analysis : While the costs of the financial bailouts and economic stimulus bills are staggering, they are only a fraction of the coming costs from Social Security, Medicare, and Medicaid. Over the next decade, the Congressional Budget Office (CBO) projects that each year Medicaid will expand by 7 percent, Medicare by 6 percent, and Social Security by 5 percent. These programs face a 75-year shortfall of $43 trillion–60 times greater than the gross cost of the $700 billion TARP financial bailout)).

Among the thirty-three industrialized countries in the world, only America has no universal health care. Why do all the leading countries require participation in a universal plan? Because every other country understands that health care is not only a basic right, it is also a necessity, a sane policy protecting the country from plagues and epidemics but also from bankruptcy by providing modern and uniform health care for its people.

Posted by hsr0601 | Report as abusive

Sarah Palin’s huge 2012 move: She endorses Paul Ryan’s ‘Roadmap’

Dec 10, 2010 15:55 UTC

With one op-ed piece in the WSJ, Sarah Palin has made a lasting impact on the dynamic of the upcoming Republican presidential race — even if she doesn’t run. (Though I think she will.) By strongly endorsing Rep. Paul Ryan’s outstanding Roadmap for America’s Future, Palin has set a floor for how radical and sweeping an agenda the 2012 candidates can offer. Anyone offering less will look timid and inconsequential and most un-Tea Party-esque. One of the big knocks against Ryan’s plan is that few of his colleagues are supporting it. Now the most high-profile Republican in America has given it her seal of approval. The Ryan Roadmap is quickly becoming the de facto GOP economic platform.  And if Palin does decide to run, she immediately starts out with  a specific and coherent agenda.  Candidates beware: Bullet points and platitudes aren’t going to cut it.


Fresh off her pronouncements on the Fed’s “quantitative easing” and federal aid to the states, Sarah Palin now adds the deficit and Medicare to her Potemkin façade of policy expertise. This is more than a little ironic for the propagator of the “death panels” myth. As it turns out, Ryan’s plan would inevitably lead to the rationing of the Medicare program on which 46 million American seniors now depend.

Hoping to lead the party that tried to block Medicare in the 1960′s and gut it in the 1990′s, Palin is endorsing Ryan’s proposal to cure what ails the health insurance system for millions of American seniors by killing it. When Ryan unveiled his Roadmap back in February, privatization of Medicare was the centerpiece. But because the value of Ryan’s vouchers fails to keep up with the out-of-control rise in premiums in the private health insurance market, America’s elderly would be forced to pay more out of pocket or accept less coverage.

George W. Bush’s disastrous drive to privatize Social Security helped undermine his presidency. Now, in the wake of a Wall Street meltdown that evaporated the retirement savings for countless thousands of Americans, the Republican Golden Boy Ryan is calling for an encore.

Yeah. Ryan is the one Republicans should be considering for president or VP. Go for it.

Posted by GetpIaning | Report as abusive

Is the Obama-GOP tax deal about to collapse?

Dec 9, 2010 19:21 UTC

Things may be going swimmingly in the US Senate, but not so the House:

WASHINGTON (Reuters) -House of Representatives Speaker Nancy Pelosi will not bring President Barack Obama’s current proposed tax plan up for a vote in her chamber, an aide said on Thursday.

The aide said Pelosi would require changes be made to the measure that most of her fellow House Democrats formally opposed by approving a resolution of opposition to it. The aide said: “She (Pelosi) will honor the resolution.”

It’s simple: If the Bush tax cuts are not extended, the US risks falling back into recession next year. At the very least, the markets believe that and will act accordingly. Not to mention what a disaster this would be for the Obama presidency:

The obvious lesson, if the deal collapses, will be that Obama can’t deliver anything – he can be pushed into compromise with GOP priorities, as he wouldn’t before the election, but he can’t bring along his own caucus, which has suffered so many losses for following his lead. Liberals will learn that they are better off striking their own distance from an unpopular and increasingly impotent leader. And heavy liberal opposition to the deal will make it impossible to blame DeMint or Republicans for the collapse, and will encourage conservatives to push for even fewer compromises with Obama in 2011. That calculus of legislative forces will make it hard for Obama to plan for the other leg of the Clinton strategy, a budget battle in which the GOP blinks. Obama can try to use the whole mess to argue that “Washington is broken” and all that, but it’s a hard argument to make from the Rose Garden.

By failing to ensure ahead of time the support of his own caucus, President Obama may have shot himself in the foot in dealing with the Republican-controlled House even before the new majority is sworn in.


Bernie Saunders has the right idea. Reject for now, and then insist on a proper deal in January with threat of filibuster in the Senate and Veto from President Obama.

Posted by donlwa | Report as abusive

More on states going bankrupt, this time with added Felix Salmon goodness

Dec 8, 2010 21:52 UTC

Felix Salmon — who, like me, works at Reuters but, unlike me, is officially a citizen of no nation and operates from a specially modified Yakovlev “Yak” 77 that only lands to refuel and take on provisions — comments on my post about GOP plans to push states into bankruptcy:

If it were implemented, or if it even looked like it might get implemented, prices of municipal bonds would plunge, and most states would find it pretty much impossible to borrow money. As such, facing a massive and immediate liquidity crisis, they would be in more need of a federal bailout than before the bankruptcy legislation was seriously mooted.

The fact is that there’s only one reason to invent a Chapter 8 bankruptcy provision for states—and that’s to come up with an efficient and legal way to impose losses on bondholders and other creditors. (Chapter 9, which applies to cities and other municipal entities, doesn’t apply to states.) The creditors, fully aware of this, would immediately cease lending, certainly to the rockier states like California, Illinois, and New York. That’s not what we want. As a result, unless or until those states can bring their budgets into a primary surplus, introducing such a provision would certainly do more harm than good. And if those states can bring their budgets into a primary surplus, then we don’t need the bankruptcy provision, since they’ll be easily capable of rolling over their debts.

If the states had a bankruptcy provision all along, then I’m sure some people would be thinking seriously about whether it made sense for one or more states to file. But they don’t, and there’s basically no way of getting there from here. As such, the idea’s a non-starter.

Wow, states not being able to borrow. That sounds more like a feature than a bug to me. This would give governors like Chris Christie another tool in their arsenal. Look for legislation along this line next year.

Who is right on tax deal, Paul Ryan or Jim DeMint?

Dec 8, 2010 20:10 UTC

OK, I’ve already laid out the expanded Jim DeMint argument for voting against the Obama-GOP tax compromise.  So how does the GOP leadership see things? If I was John Boehner or Paul Ryan or Eric Cantor or some other top GOPer,  I might counter with something like this:

Jimmy P.,

Your column appears to start from a false premise that this is the Republican stimulus package.  Who is arguing that? We are arguing for a prevention of tax increases, which is what we have the opportunity to do while Pelosi, Reid and Obama still run Washington after running against the very Bush tax cuts they are set to extend.

We will have far more power when the next Congress is sworn in — at which point we can take more significant steps to advance a pro-growth agenda.  It is fine to make comments publicly about preference for permanence, but it is difficult to see the upside in playing chicken as the clock keeps ticking toward New Year’s Day.  It is difficult to imagine a better bill that will need the support of Nancy Pelosi and Harry Reid — and signed by President Obama — all before across-the-board tax hikes hit on January 1.  Obama has already done tremendous damage to his tax-and-spend policy preferences, and he continues to inflict more damage to his credibility with his bizarre press push (his hostile hostage logic is beyond twisted and the tired class warfare rhetoric beyond flat).

We are not advancing temporary sugar-high economics as our own stimulus package. we’re making the case against further economic damage from this Congress and this Administration.

Do I buy this? I dunno about the politics but the clock is definitely ticking. It is key that the Bush tax cuts get extended. But I also think it is important that supporters of pro-growth tax cuts make it clear which parts of the package are helpful and which are not. All tax cuts are not alike. Some are better than others. Clarity is required.

Is DeMint crazy to oppose Obama-GOP tax deal? No.

Dec 8, 2010 03:30 UTC

For many conservatives, the thumbs-up from Rep. Paul Ryan of Wisconsin is reason enough to support the Obama-GOP tax deal — well, that and the fact so many liberals are in a purple rage about it. And certainly there is nothing wrong about letting individuals and businesses keep more of their money — even for a little while. But Sen. Jim DeMint of South Carolina, another lover of tax cuts and hater of bloated big government, says he will oppose  and even filibuster the ginormous stimulus package. Here is DeMint on the Hugh Hewitt radio show:

I’m glad the President recognizes that tax increases hurt the economy. I mean, I guess that’s progress. But frankly, Hugh, most of us who ran this election said we were not going to vote for anything that increased the deficit. This does. It raises taxes, it raises the death tax. I don’t think we needed to negotiate that aspect of this thing away. I don’t think we need to extend unemployment any further without paying for it, and without making some modifications such as turning it into a loan at some point. It then encourages people to go back to work. So there’s a lot of problems with it. I mean, and frankly, the biggest problem I have, Hugh, is we don’t need a temporary economy, which means we don’t need a temporary tax rate. A permanent extension of our current tax rates would allow businesses to plan five and ten years in advance, and that’s how you build an economy.

DeMint might have a point, several actually – and the implications are huge. The perceived failure of the 2009 Obama stimulus plan has again discredited the idea that government can spend America back into prosperity. But liberals, including many in the White House, protest that conclusion. They argue that the $900 billion package was both clumsily designed and too small given the depth of the Great Recession. But sorry big spenders, you only get one chance to fire a trillion-dollar bullet.

Of course, Republicans may find themselves in the same position if the $900 billion (mostly) tax-cut plan fails to reignite job growth in 2011 and 2012. Oh, the folks with the Keynesian demand-side, static analysis economic models say not to worry.  Wall Street firms such as Deutsche Bank, Goldman Sachs and JPMorgan — as well as the Congressional Budget Office —  think a) extending the Bush tax cuts, b) cutting payroll taxes, c) allowing business to immediately expense investment and d) funding more unemployment insurance will add as much as a percentage point to GDP growth next year and reduce the unemployment rate by around a third of a percentage point.

But if this new trillion dollar bullet doesn’t work as promised, the power of the tax-cut message would be greatly undermined.  And there is good reason to think the results will be disappointing:

1. DeMint thinks America needs a “permanent economy,” not a temporary one. Milton Friedman would agree. Uncle Miltie’s Permanent Income Hypothesis says short-term changes income don’t change spending habits, changes in long-term expectations do. PIH has been backed up by numerous studies (such as here and here and here) and argues for permanent tax cuts, not ephemeral ones.

2. The much-hyped payroll tax cut is not a supply-side cut. The Institute for Policy Innovation nails it:

One of the proposed provisions in the deal to extend the Bush tax cuts is a temporary 2 percentage-point reduction in the Social Security payroll tax, from 6.2 percent to 4.2 percent. Tax cuts that stimulate real economic growth operate at the margins–affecting an additional dollar of income, or an additional dollar of savings and investment–not the first dollar of income. Supply-side tax cuts encourage additional production by stimulating additional work, saving and investment.

A payroll tax cut is not a supply-side cut and won’t have much impact on economic growth. Rather, it embraces the Keynesian idea that the economy is stimulated by putting a few hundred dollars in people’s pockets so they can consume more.  … If there has to be a payroll tax cut, it actually makes more economic sense to give it to the employer half of the payroll taxes than to the employee. That would at least mitigate some of the risks of hiring new employees that have been imposed by Obama administration policies.

3. All of these temporary tax cuts will do little to lower policy uncertain among business and investors. There is still plenty of reason to worry about taxes and spending in the near future. Business is already sitting on a mountain of cash, and even Goldman Sachs wonders if the expensing provision will do much in this environment:

The proposal includes expensing of business investment in 2011, similar to the policy that the president proposed in September. This should reduce corporate taxes by about $100 billion next year if enacted, but would increase corporate tax liabilities in future years. Given low interest rates and significant spare capacity, this proposal is likely to have a limited effect on corporate behavior.

4. The 13-month renewal of emergency unemployment benefits will almost certainly keep the unemployment rate higher than it would otherwise be. Research from the San Francisco and Chicago Federal Reserve banks suggests the unemployment rate would be 0.4 percent to 1.7 percentage points lower if not for the extended unemployment benefits.

Republicans didn’t own the Mega-Stimulus. They will own Mega-Stimulus 2.0 in the eyes of the public. Before they sign off, they may want to seek a second opinion Dr. DeMint.


you said [Opposing the death tax is ridiculous. Dead people don’t need money and think it’s reasonable for the deeply-indebted country that created the conditions for their success to expect to demand a large portion of that wealth back. People who remain alive in this country don’t need an aristocracy.]

while I agree that dead people don’t care, I’m pretty sure their heirs do – and thats the point. And why does the event of death create more tax liability? Taxes are imposed upon transactions, service, and products – is death any of those? Why should death be taxed again?

[Handouts should never come from governments because they do a miserable job of deciding who is worthy of my money]

Agreed, are you saying then that Social Security and Medicare should be ended? What about unemployment benefits?

Posted by BHOlied | Report as abusive

Secret GOP plan: Push states to declare bankruptcy and smash unions

Dec 7, 2010 18:42 UTC

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program.  BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31.  And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

Republicans in the House of Representatives already want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about these future obligations. Republican Representatives Devin Nunes and Darrell Issa of California and Paul Ryan of Wisconsin have introduced a bill that would require state and local governments to estimate the size of public pension liabilities if their assets earned a more conservative rate of return than many plans currently expect. Failure to do so would result in the suspension of their ability to issue tax-exempt bonds

Greater transparency on these obligations can’t be bad. In fact, the federal government itself would do well to report deficit numbers not just on the current cash-in, cash-out basis but also incorporating the underfunding of promised pension and healthcare benefits to retirees.

But it’s about more than just openness. Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Indeed, legislation  amending federal bankruptcy law is currently being prepared by congressional Republicans. Local municipalities do declare bankruptcy from time to time, most famously California’s Orange County in 1994. But states can’t. Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes. In a recent issue of the The Weekly Standard, bankruptcy expert David Skeel of the University of Pennsylvania walks through the implications:

With liquidation off the table, the effectiveness of state bankruptcy would depend a great deal on the state’s willingness to play hardball with its creditors. The principal candidates for restructuring in states like California or Illinois are the state’s bonds and its contracts with public employees. Ideally, bondholders would vote to approve a restructuring. But if they dug in their heels and resisted proposals to restructure their debt, a bankruptcy chapter for states should allow (as municipal bankruptcy already does) for a proposal to be “crammed down” over their objections under certain circumstances. This eliminates the hold-out problem—the refusal of a minority of bondholders to agree to the terms of a restructuring—that can foil efforts to restructure outside of bankruptcy.

The bankruptcy law should give debtor states even more power to rewrite union contracts, if the court approves. Interestingly, it is easier to renegotiate a burdensome union contract in municipal bankruptcy than in a corporate bankruptcy. Vallejo has used this power in its bankruptcy case, which was filed in 2008. It is possible that a state could even renegotiate existing pension benefits in bankruptcy, although this is much less clear and less likely than the power to renegotiate an ongoing contract.

It wouldn’t be easy to change the law. Public employee unions have traditionally carried great influence with Democrats, even if President Barack Obama’s willingness to freeze their pay on the federal level suggests their clout may be waning.  From the Republican perspective, the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group. For the GOP, it’s an economic and political win.


“Here, the ‘take’ for public-employee union entitlements is projected to DOUBLE in 5 years, and it is already HIGH! The old contracts MUST be broken.”

I’d love to know where this garbage came from – do you even have any evidence to back this assertion up? I think not. In fact, don’t bother – by actually showing you the errors used in cherry-picking such an arbitrary figure, I’d just upset you and you clearly aren’t likely to be changing your mind based on the facts.

“Look at the gulf that is widening between public and private sector jobs. This has to stop. It is unsustainable.”

Look to the gulf that is widening between the personal tax burden and concentration of wealth into the polutocratic top 2% in the USA. THAT is what is unsustainable.

“Sounds like a good plan as far as this Red Stater is concerned because we can see the Blue States circling the drain and we know what’s next…federal handout. The liberal test beds have run their economies into the ground. They shouldn’t expect flyover country to bail out their bad policies. Did you see the way CA voted in the last election for heaven’s sake? These people are clueless…drop the guillotine.”

Take a look at how much your ‘red state’ gets in Federal funding vs. the ‘blue states’ – or should I say, engines of the economy, and then edit out your outrageous comments about blue states needing federal handouts. Red states are generally the highest recipients and lowest contributors to Federal funds – and oddly enough its exactly those welfare states that hold the strongest views on these issues. Don’t kill your golden goose.

for more information here is a good place to start:
http://en.wikipedia.org/wiki/Federal_spe nding_and_taxation_across_states

The American Dream used to be that you can build a life from scratch here, that you can come here with nothing and end up with a business, a house, even wealth that you can leave to the next generation.

Guaranteed wages and social security for some mean less opportunity for the rest of us. That is why I left Europe; I saw that I was going to have to pay for the babyboomers retirements and healthcare for the rest of my life. America is now worse than Europe.

Home values should fall! They are inflated. The entire Obama agenda is about keeping the bubbles inflated, bailing out the rich, the babyboomers, the too big to fail companies, union/government workers.
- Posted by peterverkooijen”

So you swallowed the conservative agenda hook, line and sinker, then you found out that it’s exactly the same over here, in a country where all they’ve managed to achieve is a quarter of the population without health care – and yet you are still unable to admit this ideology is fundamentally flawed.

Why are you blaming public and union workers for something as functionally disconnected as prices in the housing market?? Since Unionized and public workers together account for less than 7% of the United States’ work force, and under 33% of them are unionized. It doesn’t seem that the influence they could exert on the market could be the reason for high property prices.

The republican party and their allies are playing a negative-sum game in order to win. The problem is, they will destroy their prize by playing this way.

Posted by Retalliouns | Report as abusive

A few thoughts on the Obama-GOP tax deal

Dec 7, 2010 15:53 UTC

Let’s assume for a moment that the Democrats don’t scuttle the whole thing. And that very well may happen. It’s all very good news from a Keynesian perspective. Unemployment insurance and the payroll tax cut both score especially well in the sort of  demand-side economic models run by, say, the Congressional Budget Office. And I will certainly take even temporary tax cuts over more spending to prop up public employee unions and cater to the green lobby.

But this package does little to bring long-term certainty about public policy. The corporate tax rate is still too high, while rest of the tax code is an uncompetitive mish-mash that reflects the interests of lobbyists. I thought Goldman Sachs had an interesting take on the immediate expensing provision:

The proposal includes expensing of business investment in 2011, similar to the policy that the president proposed in September. This should reduce corporate taxes by
about $100 billion next year if enacted, but would increase corporate tax liabilities in future years. Given low interest rates and significant
spare capacity, this proposal is likely to have a limited effect on corporate behavior.

And let’s not forget what Milton Friedman might have to say about this sort of deal. Bring on the funk, Wikipedia:

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.


Krugman’s numbers on the Bush tax cuts don’t add up

Dec 6, 2010 15:59 UTC

Why is Paul Krugman being so  unhelpful here:

A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.

That might be true of the high-end Bush tax cuts, but letting them all expire would chop at least two percentage points off GDP, according to a variety of economic models run by banks and consultants


Banks and consultants know way more about economics than a Nobel Prize for Economics winner.

Posted by whowhatwhy | Report as abusive