Post flambe

OMB Watch has an article on talk of a stimulus package and what it should not do. Actually, it does propose an idea, but I left that out. To quote:

“During his speech at the Union League Club of Chicago on Jan. 7, Bush reiterated the importance of continuing his current policies to address what he calls recent economic “challenges.” However, he emphasized that new initiatives are unnecessary to address the damage from the housing and financial crises. Bush called for extending his first-term tax cuts, few of which, if any, would have any impact on current economic signals.

Meanwhile, Paulson, in his speech before the New York Society of Security Analysts, Inc., said the administration would consider an economic stimulus package but would not provide any details. This is why some speculated that Bush might announce something during the State of Union address.

It is important that policy makers ignore calls for a repetition of the failed 2001-2003 Bush tax cuts and adhere to sound economic principles as described by Summers and Orszag. Even worse would be calls for extension of those same tax cuts as a short-term solution for current fiscal problems. Permanent tax cuts for the wealthy and corporations would do little to immediately stimulate the economy or direct economic aid to those most affected by an economic slump while ultimately putting a drag on the economy in the long term through sustained budget deficits.

(The views expressed are those of mine alone and should not be attributed to the trustees, officers, or staff of the Brookings Institution or the Tax Policy Center. Much of this talk draws upon joint work with William Gale of Brookings, Robert Greenstein and Richard Kogan of the Center on Budget and Policy Priorities, Robert Rubin of Citigroup, and Allen Sinai of Decision Economics, Inc. I also thank Robert Cumby of Georgetown University, Peter Diamond of MIT, Doug Elmendorf and David Wilcox of the Federal Reserve, Robert Bixby of the Concord Coalition, and Maya MacGuineas of the New America Foundation for helpful discussions.)