Can we cancel the circular firing squad?
As far as I can tell from the Journal’s reporting, the main tax elements are largely indistinguishable from what Obama was promoting in the fall. Here, for instance, is a snippet of the third debate:
[Bob Schieffer:] Senator Obama, you proposed $60 billion in tax cuts for middle- income and lower-income people, more tax breaks to create jobs, new spending for public works projects to create jobs…
[TB Note: The $60 billion mentioned by Schieffer is an annual figure, while the $300B reported by the W$J is over two years.]
[Sen. Obama:] Number one, let’s focus on jobs. I want to end the tax breaks for companies that are shipping jobs overseas and provide a tax credit for every company that’s creating a job right here in America.
Number two, let’s help families right away by providing them a tax cut — a middle-class tax cut for people making less than $200,000, and let’s allow them to access their IRA accounts without penalty if they’re experiencing a crisis.
Now Prof. Krugman’s analysis actually is pretty solid on the economics of stimulating via a combination of tax cuts and public expenditures, and he seems to detect the underlying politics. That is, use a spoonful of tax cuts that the Obama camp was going to push anyway to peel off enough Republican votes to advance a lot of stuff that the Senate Republicans’ paleolithic caucus won’t like (and, let’s face it, can’t stop, whatever Mitch McConnell might say about wanting to lend rather than grant money to the states and such). If the ‘carrot’ approach is followed by capitulation rather than by aggressive pressure to promote the plan a la Obama, then the political observers may have something to gripe about.
On the economics, I don’t especially care for the business tax cut components, which in the absence of a general loophole-closure program I’d expect would as likely as not stimulate the tax law sector of the economy while the Tax Foundation still gets to gripe about high statutory corporate rates. And it’s a matter both of Our Stupid Discourse and government accounting methods that fail to distinguish between government consumption and investment spending that tax cuts are less controversial than appropriately targeted spending. But anyone who’s surprised by this part of the stimulus package wasn’t paying attention during the campaign.