The Obama-Republican Tax Deal
Though I’m a bit disappointed, I’m not at all surprised over the tax deal that’s been brokered between the Obama Administration and Congressional Republicans. Granted, maybe something more palatable could have emerged had Obama engaged the issue much earlier. Personally, I would have liked to see the tax cuts expire for high income households and the revenue generated transferred to shore up hemorrhaging state and local government budgets. In that way, a budget deficit source would have been closed off while a spending source with one of the largest multiplier effects would have opened up. Alas, that is water under the bridge. The liberal left of the Democratic Party and progressive economists like Paul Krugman need to get over it.
In exchange for extending the high income tax cuts, the tax cuts for low and middle income Americans will continue and this should help in at least maintaining the slow rise in consumer spending that the economy seems to be experiencing. Additionally, the extension of jobless benefits and the one year reduction in payroll taxes will put a bit more money mostly in the hands of those who will likely spend it rather than save it. It’s like a second “mini” stimulus that should modestly expand aggregate demand and provide a little more oomph to our ongoing but fragile recovery. What I really don’t like about the deal is Obama rolling over on the estate tax cut. Its extension was an unnecessary gift to very high income households and to the Republican side of the aisle.