Tuesday, December 14, 2010

Xtra's Pronouncement on the Tax Deal

I think it is crap and stupid. The payroll tax cut is good. I don't know which side it would be better to cut (here is Matt Yglesias in favor of cutting the employee side and Bryan Caplan and Greg Mankiw in favor of cutting the employer side). I don't view boosting aggregate demand as the most important thing in the world but rather cutting the cost of labor so as to reduce unemployment. I think instead of the crap stimulus bill that we got with $100 billion for highways and the stupid Make Work Pay tax credit we should have focused all the tax cuts on the employer portion of the payroll tax cut and sought higher value infrastucture investments but that day has passed. The Obama administration botched that stimulus and they seem intent on botching the tax deal. Some suggest that Obama adminstration had no leverage. I disagree, the default, i.e. current law, would have resulted in the expiration of the Bush tax cuts which the right desperately wanted to presever. If I had been President Obama, at a minimum, I would have sought a downpayment on deficit/debt reduction in the outyears (maybe an increase in the gas tax or a federal booze tax, whatever) in exchange for any extension of the tax cuts. I think the alternative view is that the Obama administration wanted to get as much stimulus as possible and this was the deal that got them that. That may be the case but it is still weak sauce in my view.

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