Economist’s View – A Few Reactions to the Tax Cut Agreement
From the Economist’s View:
Update — More Reactions:
So the tax deal is out. Obama extracted some concessions, with the big surprise being a payroll tax cut. How much better do these concessions make the thing? …[T]his raises GDP by 0.7 percent relative to otherwise; rule of thumb is that one point on GDP is half a point on unemployment, so add 0.35 points to the CBO numbers.
That’s a two-year average; what about timing? Both the payroll tax break and the unemployment extension are for the first year only. So, a bigger boost next year, fading out in 2012. Since all the evidence says that elections depend on the rate of change of unemployment, not its level, this is actually bad news for Obama: he’s setting himself up for an economic stall in the months leading into the 2012 election.
Oh, and he’s overpromising again:
“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”
Millions of new jobs? Millions? Not by my arithmetic.
So, was this worth it? I’d still say no, although it’s better than what I expected over the weekend. It still greatly increases the chances of the Bush tax cuts being made permanent — especially because the front-loading of the stimulative stuff actually worsens Obama’s 2012 electoral prospects.
Overall, enough sweetener has been added to diminish, but not eliminate, the bitterness of the disappointment.