A Second Stimulus

[ProSense]

A Second Stimulus

By DAVID LEONHARDT

The apparent deal over the Bush tax cuts highlights why the Democrats probably had to accept the extension of all the Bush tax cuts. No politician is likely to use this word — at least no Democratic politician — but the deal amounts to a second stimulus bill.

Consider the following two situations:

1. President Obama and Congressional Democrats refuse to extend the tax cuts on income above $250,000. Congressional Republicans refuse to extend any tax cuts unless all cuts are extended. So all of the Bush tax cuts expire on Dec. 31. Congress and the White House spend weeks or months fighting over the issue, accomplishing little else and potentially damaging consumer confidence and business confidence. Eventually, the two parties come to some kind of compromise. It restores most, but not all, of the tax cuts. The cost to the budget — that is, the amount of money pumped into an ailing economy — is about $400 billion over two years.

2. What actually seems to be happening: Democrats and Republicans agree to extend all the tax cuts and also agree to an extension of unemployment benefits, a cut in the payroll tax and, according to my colleagues, “continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.” The amount of money pumped into the ailing economy: about $900 billion over years.

Subtract the $400 billion cost of the Bush tax cuts. Subtract another $140 billion or so, which is the cost of extending the Alternative Minimum Tax patch (and almost certainly would have happened regardless). You’re then left with more than $300 billion in net stimulus over two years. And while that sum will not be enough to fix the economy all by itself, it is serious money. The original stimulus bill cost about $800 billion, and most of the money will have been spent in the first two years after its passage.

This deal looks an awful lot like a second stimulus.

None of this is meant to wave away the failure by Mr. Obama and other Democratic leaders to take action on the Bush tax cuts earlier. The Democrats did not need to be in this position. But the outcome is not all bad, especially for the short-term sake of the economy.

[Clio the Leo]

1. kicked for discussion nt

[Igel]

2. Sounds like an excuse, if you ask me.

They got this package of distributions and tax cuts, all of which are simply status quo.

The unemployment extension won't create jobs. It's not going to suddenly increase demand. It will keep demand where it was. Same for the tax cuts, AMT deferral. Even the payroll tax mitigation is small and offset by other tax increases--and energy price increases. No new demand. Status quo. "Stimulus" in the sense that continuing to have air in the room I'm in is stimulating--hardly an invigatoring, spring breeze, redolent with the vitality of spring, fresh cut grass, flowers and birdsong, but it keeps me from asphyxiation.

Then there's the hue and cry from the previous three stimuluses. (Stimuli?) In 2009, there were some tax cuts, a sop to conservatives in and out of the (D) party, but we all knew that tax cuts weren't stimulating. The 2008 stimulus was essentially just giving away money, and we all knew that wasn't stimulating--even though the effect was supposed to wear off come fall, and in fall 2008 the recession, minimal for the first 1/2 to 2/3 of 2008, kicked into high gear. And the 2001/02 "stimulus" and those tax cuts, we all knew at the time, would have no stimulus effect.

Suddenly giving away money and tax cuts, all essentially part of maintaining the status quo, is a "stimulus package"?

[Milo_Bloom]

3. Spin cycle in full effect.

It's not a tax cut for the rich, it STIMULUS SPENDING.

You know what is sad? I personally make out like a bandit from this, so I should be happy. As a business owner, I can increase and split my salary up between myself and my fiance (we aren't married b/c of the tax consequences anyway) to take full advantage of the 2% dip in SS$, while getting a 100% tax credit on items I would normally have to depreciate over years (not buying anything extra.. just what I was doing anyway)... and I will likely wind up with a hefty tax refund in Feb... which will go promptly into savings.

So, why am I upset. Because this "deal" does absolutely nothing to solve any of the problems. Giving someone an additional 13 months of unemployment doesn't help them get a job. We already KNOW that the bush tax cuts (the vast VAST majority of this package) does NOTHING to stimulate job growth. The additional months of unemployment benefits won't STIMULATE job growth (it is status quo!!)

The only new money actually being pumped into the economy is the HOPES that businesses will take advantage of the 100% tax credit to rush to buy items they wouldn't otherwise buy. I believe this part of the package is estimated to be about 60 billion total.

That ain't much stimulation