« links for 2011-08-12 | Main | Romer: The Hope That Flows From History »

Saturday, August 13, 2011

GOP on Defensive over Fiscal Policy

I wish I could believe that the tide is starting to turn against Republicans:

GOP on Defensive as Analysts Question Party’s Fiscal Policy, by Jackie Calmes, NY Times: The boasts of Congressional Republicans about their cost-cutting victories are ringing hollow to some well-known economists, financial analysts and corporate leaders, including some Republicans, who are expressing increasing alarm over Washington’s new austerity and anti-tax orthodoxy.
Their critiques have grown sharper since last week, when President Obama signed his deficit reduction deal with Republicans and, a few days later, when Standard & Poor’s downgraded the credit rating of the United States.
But even before that, macroeconomists and private sector forecasters were warning that the direction in which the new House Republican majority had pushed the White House and Congress this year — for immediate spending cuts, no further stimulus measures and no tax increases, ever — was wrong for addressing the nation’s two main ills, a weak economy now and projections of unsustainably high federal debt in coming years.
Instead, these critics say, Washington should be focusing on stimulating the economy in the near term to induce people to spend money and create jobs, while settling on a long-term plan for spending cuts and tax increases to take effect only after the economy recovers. ...
S.& P. based its downgrade ... partly on the assumption that Bush-era tax cuts for high incomes would be extended past their 2012 expiration, “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.” S.& P. said it could change its outlook to stable if the tax cuts ended.
Yet Republicans insist that taxes will not be on the table for the bipartisan Congressional committee created by the deficit deal. ... The prospect of further reductions worries forecasters. ...
Low borrowing costs, analysts say, are more reason to bolster the economy now. “At the very least,” said Mark Zandi..., Congress should renew for another year two measures that expire after 2011 — payroll tax relief for employees and extended unemployment compensation — as Mr. Obama has proposed. If either expired, Mr. Zandi said, that could shave roughly a half-percentage point from economic growth next year.
Republicans are resistant. And Democrats are too cowed to counter much, given polls that show many Americans believe Mr. Obama’s 2009-10 stimulus package did not work, despite studies to the contrary.
A Democratic Congressional adviser, granted anonymity to discuss party deliberations, said: “We’re at a loss to figure out a way to articulate the argument in a way that doesn’t get us pegged as tax-and-spenders.” ...

This isn't my preferred way of doing it, I'd rather simply run deficits in the short-run and put a plan in place to address long-run issues, but one option is to raise taxes on upper incomes and use the money to finance infrastructure and job creation on a dollar for dollar basis for two years (three would be better), and not a day more. After that, the spending on the projects ends and the tax increase goes solely to deficit reduction. That is, in the short-run build a fixed number of infrastructure projects financed by the tax increase on upper incomes and chosen in part based on the project's ability to create jobs -- once the number of the projects is set it cannot be increased -- and when that ends, that's it. But the higher taxes persist. That should yield a net budget reduction over ten years without harming the economy or making the deficit worse in the short-run, and help with growth in the long-run. Job-and-growth-creating-tax-and-reduce-the-deficit liberals seems like a decent label to me.

    Posted by on Saturday, August 13, 2011 at 12:24 AM in Budget Deficit, Economics, Fiscal Policy, Politics, Unemployment | Permalink  Comments (76)

          


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.