Can someone help me come up with an argument for why the Obama stimulus plan isn't turning out to be a painful joke?
Thanks in advance.
Okay, what did that mean?
Apparently, the Murdoch Street Journal had a story saying that there was going to be a lot of tax cuts in the stimulus plan.
Liberals everywhere, freaked...because if the Wall St. Journal's happy, it can't be a good thing. Normally, I'd agree, but it was hard to put a pin in this since I hadn't (at the time) heard from the President-Elect.
Paul Krugman chimed in on his blog on Friday:
There’s a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one.
But the numbers being reported — 40 percent of the whole, two-year plan — sound high. And all the news reports say that the high tax-cut share is intended to assuage Republicans; what this presumably means is that this was the message the off-the-record Obamanauts were told to convey.
And that’s bad news.
Realizing that his first post was a little...arch, and now armed with Krugman's pushback, Josh went on to explain what he meant:
Since my earlier post was more arch and cryptic, I wanted to expand on what seems to be the problem with the Obama stimulus plan, as revealed in the current round of leaks. I would point to three key issues. And I'm going to base these three on the premise -- which is by no means clear -- that the business tax cuts included in the bill aren't particularly egregious on their own terms but rather ones that make some economic sense in the situation we find ourselves in.
So with that, the three.
First, there seems to be a decent consensus that the tax rebates from last year had little stimulative effect on the economy. So while it's a good thing for families on the margin to get another $500 or $1,000, it's not clear how much bang for the buck you'll get for the money spent in terms of creating demand/consumer spending in the economy.
Second, the amount of the bill that comes in tax cuts leaves the spending side of the bill really small -- judged by the standards of what most economists seem to think is necessary, like $400 billion over two years. So it's not just the logic of the tax cuts on their own merits but the degree they're beggaring the spending side of the ledger. (A lot of this just comes down to whether or not you buy into the Keynesian premise of the whole exercise, of course. But let me note for the record that there does seem to be a decent rationale for significant tax cuts in year one of the bill, since you need to get money into the economy rapidly and there may not be enough projects that can be started quickly. That leaves the question of why so much of it is also included in year two. I fear that may be the 'tell'.)
Third, and in some ways this is the most troubling. It would be far better on many counts to bring in substantial Republican support for this bill. And I don't just mean that in the BS sense in which President Bush usually meant it, which was to say essentially, 'Of course we'd like you to vote for exactly what we want. More the merrier. But if you don't want to vote for our ideal bill, tough luck.' No, I think there's a real logic in not going the 51 votes model President Bush followed. But Obama seems to be telegraphing that to a significant degree the fundamental structure of the legislation is being built around accommodating the concerns of Republicans -- members of a political party that are about as unpopular and weak as you can get at the moment. And that sounds a lot like he's negotiating with himself, something that will embolden opposition and invite Republicans to up the ante even further.
These are just leaks. We don't have details. Some are speculating that this is part of some global head fake by the Obama folks. I hope so. But put me down as very skeptical.
And then Krugman chimed in again, once he had details...and still wasn't happy.
A few more details are emerging: $140 billion for Obama’s tax break for workers, which gives most workers $500. But it sounds as if the rest is mainly, perhaps almost entirely, tax cuts for business. Not very New Dealish.
In contrast, former Labor Secretary, and Obama Economic Adviser Robert Reich was on board:
For the record, Reich is part of the transition team. He's probably got more insight than he's letting on, so I don't know what he's talking about.
At the same time, when Josh writes of Reich's comments that: "He was very positive on the tax cuts, which is a key tell", I have no idea what that means. I assumed it meant that the Rubinomics folks were on board, which to Josh and Krugman is a bad thing.
Then Jed, over at the Jed Report, also tried to calm folks down.
Overall, the package will cover a two-year period with a price-tag of $675 billion to $775 billion, $270 billion to $310 billion of which would be spent on tax cuts. The balance — $405 billion to $465 billion — would be spent on infrastracture, health care, and other programs.
One thing to keep in mind is that in early 2008 Congress passed a $131 billion tax cut stimulus plan covering one year. Therefore, while $300 billion over two years might seem like a lot, it’s actually the same level of spending as we saw in 2008.
I'm not sure it worked, though.
Now, imagine the President-Elect's confusion in all this. In his mind (and mine as well) this is what he's been promising all along:
I'm having a hard time understanding the anger coming from Krugman and Josh, and thus am having a hard time determining if it's misplaced or right on the money. I seem to remember a combination of Tax Cuts for the Middle Class, Tax freezes on salaries between $150,000 and $250,000 and a Tax hike on anyone making over $250,000 as part of the plan. I also remember Obama wanting to get help for Small Businesses as well.
So, what's the problem here?
