Monday, August 2, 2010

To Extend Bush Tax Cuts or Not...

Given that we all still expect to be at 9.0%-plus unemployment one year from now, the middle-class tax cuts are clearly still a no-brainer. What about for the rich?

Cristina Romer says no. I think this is terribly short-sighted, however. Republicans, of course, wildly support extending them. So much so that this is one form of stimulus which they won't filibuster. Hence, the Democrats could plausibly agree to a one to two year extension in return for another $200 billion in aid to states and extended unemployment benefits. Of course tax cuts for the rich are the worst form of stimulus possible, but it still is stimulus. (Except the estate tax, no reason whatsoever to extend that...)

Now, if the Republicans give nothing in return, then eff it, but we should at least try. The economy really does need to be stimulated, and now that the Fed is leaning toward doing slightly more QE means that another stimulus package would likely only make the Fed lean toward doing nothing/raising rates but not actually do it. So, we're in the sweet spot where more stimulus is warranted and can be effective.

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