Our colleague PGL offers this take at Econospeak on the new deal this week:
Andrew Leonard covers the opposition to the Obama-McConnell tax deal coming from Tea Party star Michele Bachman. I’m tempted to say that her comments make me feel 30 years younger (with the hesitation that this is the 30-year anniversary of when some twit named Mark David Chapman murdered John Lennon). After all, 30 years ago we were mocking supply-siders and their Laugher Curve.
And as for what the country can afford? The total cost of the tax cut package unveiled yesterday, counting the extension of all the Bush tax cuts, the new payroll tax cut, the unemployment benefit extension and the reinstated (at a historically low level) estate tax comes to around $800 billion-$900 billion over the next two years. The cost of extending unemployment benefits for 13 months is about $60 billion. If your worry is “massive spending” then there are more appropriate places to direct your ire than unemployment benefits … we should looking very closely at which tax cuts or social welfare policies are most likely to give us the biggest bang for the buck, in terms of encouraging economic growth. And on that score, spending money on unemployment benefits gets a very high rating. Extending unemployment benefits is a sensible move for a government when it is stretched for funds when economic growth is slow and the goal is to increase demand.
In Michele Bachman’s world – is $60 billion much larger than $800 billion? Or does she really believe reducing taxes does not add to the deficit? The latter seems to be the world Art Laffer lives in. Of course, Laffer might argue that fiscal stimulus ala tax cuts will increase real GDP. The endorsement of the Obama-McConnell tax deal from the National Review certainly sounded very Keynesian:
But the deal is still worth taking: If it won’t do much good for the economy, it will avert a serious blow to it.
Of course, a temporary tax cut on the very well to do likely is not going to generate much in the way of additional consumption demand, which is why increase government spending has a bigger bang for the buck. While Tea Party types say they’d like to reduce unemployment, they oppose even modest increases in government spending. And while they say they abhor deficits, they want large tax cuts with little bang for the buck. Go figure!