Where is the US economy headed?

I've got black material in my sewing stash. I am thinking of making an arm band.

None of you righties know the context for Pelosi's remarks, do you?

December 5, 2010
Let’s Not Make a Deal
By PAUL KRUGMAN

Back in 2001, former President George W. Bush pulled a fast one. He wanted to enact an irresponsible tax cut, largely for the benefit of the wealthiest Americans. But there were Senate rules in place designed to prevent that kind of irresponsibility. So Mr. Bush evaded the rules by making the tax cut temporary, with the whole thing scheduled to expire on the last day of 2010.*

The plan, of course, was to come back later and make the thing permanent, never mind the impact on the deficit. But that never happened. And so here we are, with 2010 almost over and nothing resolved.

Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?

The answer is that they should just say no. If G.O.P. intransigence means that taxes rise at the end of this month, so be it.

Think about the logic of the situation. Right now, the Republicans see themselves as successful blackmailers, holding a clear upper hand. President Obama, they believe, wouldn’t dare preside over a broad tax increase while the economy is depressed. And they therefore believe that he will give in to their demands.

But while raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.

Bear in mind that Republicans want to make those tax cuts permanent. They might agree to a two- or three-year extension — but only because they believe that this would set up the conditions for a permanent extension later. And they may well be right: if tax-cut blackmail works now, why shouldn’t it work again later?

America, however, cannot afford to make those cuts permanent. We’re talking about almost $4 trillion in lost revenue just over the next decade; over the next 75 years, the revenue loss would be more than three times the entire projected Social Security shortfall. So giving in to Republican demands would mean risking a major fiscal crisis — a crisis that could be resolved only by making savage cuts in federal spending.

And we’re not talking about government programs nobody cares about: the only way to cut spending enough to pay for the Bush tax cuts in the long run would be to dismantle large parts of Social Security and Medicare.

So the potential cost of giving in to Republican demands is high. What about the costs of letting the tax cuts expire? To be sure, letting taxes rise in a depressed economy would do damage — but not as much as many people seem to think.

A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.

Oh, and what about confidence? I’ve been skeptical about claims that budget deficits hurt the economy even in the short run, because they undermine confidence in the government’s long-run solvency. Advanced countries, I’ve argued, have a lot of fiscal leeway. But anything that makes permanent extension of obviously irresponsible tax cuts more likely also sends a strong signal to investors: it says, “Hey, we aren’t really an advanced country; we’re a banana republic!” And that can’t be good for the economy.

Last but not least: if Democrats give in to the blackmailers now, they’ll just face more demands in the future. As long as Republicans believe that Mr. Obama will do anything to avoid short-term pain, they’ll have every incentive to keep taking hostages. If the president will endanger America’s fiscal future to avoid a tax increase, what will he give to avoid a government shutdown?

So Mr. Obama should draw a line in the sand, right here, right now. If Republicans hold out, and taxes go up, he should tell the nation the truth, and denounce the blackmail attempt for what it is.

Yes, letting taxes go up would be politically risky. But giving in would be risky, too — especially for a president whom voters are starting to write off as a man too timid to take a stand. Now is the time for him to prove them wrong.


* Sounds like the ican scenario about people robbing others of their earnings: the captains of industry robbed the American worker again, and again, and again.

Here is what she said...



But wouldnt jobs create MORE demand?
How is it a job creator?

If it's on sale.

Do you even know what context is? Perhaps, I was wrong about you being a bully who uses the strawman style to bludgeon people. You honestly might be clueless.

The current trend in the fall of our economy since 2007, has got to be corrected. The ILL, Invidious Leftist Liberals, elected in 2006 and 2008, will not correct it. The GRL, Greedy Rightist Liberals, elected in 2010, will correct it.

I finally figured out ican! He's worried about those who camp out here and the amount of sleep we get! He posts the same thing over and over again to bore us to sleep.

An act of charity!

The U.S. Treasury on Monday sold off the remaining shares of Citicorp common stock it owned. The government in 2008 and 2009 poured $45Bn into bailing out the company and had a 27% stake in it. After previously selling a portion of its holdings, the rest was sold at $4.35 per share. Today, Tuesday, the stock closed at $4.62.
The government made a profit of $12Bn overall.

Don't you mean the American people made a profit of $12Bn overall?

If that parsing of words is important to you, yes. I think you and I would agree that the government should have no business directly investing in the private sector but Presidents Bush and Obama did so, rightly in my mind during the financial meltdown. I am happy that we are coming out of that bailout reasonably unscathed. According to your sources, how much did it end up costing "us" in total?

Everyone but those that whined about the cost of the stimulus package will be getting their checks for the profit from selling Citi.

I think you are here confusing the TARP program with the stimulus package that came later. They were two very different things. The profits in question came to the government through TARP expenditures.

Good point, george.

Good evening. This is probably adding nothing, but I was reviewing today various talking-head-economists' comments on the tax bill that will be voted on before Congress heads home.
There are 5 major components:
1) Extend the Bush-era "temporary" tax cuts at all levels of income for 2 years;
2) Extend unemployment benefits for 13 months;
3) Reduce the employee portion of SSAE contributions from 6.4% to 4.4% for a year;
4) Allow the temporary estate tax ("death tax") rate of -0- in 2010 to rise to 35% (?) only for estates over $5m.
5) Allow businesses to expense investments in new equipment in the year acquired vs depreciate them over time.
Of those 5, most economists (plus me, for what it is worth) believe that #2 gets the biggest bang for the buck. That money will be spent immediately. I am sure many of you are familiar with the "multiplier effect."
The program it would replace, however, is the Making Work Pay thing, that expires on 1/1/11 and would have workers up to a certain income level getting an $800 tax credit. That would, arguably, have given those folks somewhat more money to spend.
Reducing the payroll tax on employees from 6.4% to 4.4% is panned by some economists because it extends into the higher income brackets. Yes, those with lower incomes will go out and spend. It is argued,though, that those with income at higher levels, along with those in group #1 (benefiting from the extension of the tax cuts) will save the money rather than spend it.
I could talk about #4 and #5 but this post is already too long.

Come on rjb, no one wants truth and logic. We are trying to disolve this democracy so the rich can install a dictatorship and you walk in and try to make sense - get real, uhhh, ummm - make that, get unreal dude!

.........

I love your posts, don't apologize for them!

#3 on your list is terrible, because it's not 'temporary.' There's no such thing as a temporary tax cut. The Republicans are showing that right now; every single time a 'temporary' tax cut expires, they will just use the same bullshit rhetoric that the Dems are 'raising everyone's taxes' that they use today. Not only that, but this program actively hurts SS and the future projections of it - a lot. We all know that IOU's out of the general budget are never expected to be repaid, or we wouldn't even be arguing about SS at all right now.

#4 is terrible because it provides zero stimulative effect to the economy and helps nobody except the amazingly wealthy. There is literally zero reason to pass this tax cut for the heirs of millionaires and billionaires. None at all.

I don't think this bill will be voted on before the Congress goes home, by the way. There is too much objection to it in the House, where it has to originate; the progressive caucus there will not allow the Estate tax to be lowered.

Obama should simply call the Republicans bluff on this issue. This is the Republicans TOP PRIORITY, the only real thing that most of them care about. They are transparently fake on every other issue besides tax rates for the rich. Hold those tax rates hostage and Obama can drag more and more concessions out of them; give up right away and they will drag more and more concessions out of Obama. Not hard to understand which is a better deal.

Cycloptichorn

My post got thumbed down, which perhaps says something. Or perhaps not.
I know a bit about econ and I try to write about it here in a balanced way (while disclosing my opinion). So it goes.
For a year prior to the elections in November, I and a lady in Washington state ran a thread about various Senate and House campaigns. Amazingly, despite having pretty wide viewership from all over the place, it stayed very civil and on topic. There was a brief period where it went astray, but we recovered.

Government People
1. Publically funded federal government employee contributions to charity are a violation of the Constitution of the USA.
2. Government employees are not competent to contribute public funds to effective charities.
3. Government employee public funded contributions to charity over time increase the number of people dependent on government charity.
4. Government employee public funded contributions to charity tend to be corrupted into attempts to buy re-elections.

Non-government People
1. Private people contributing to charity is lawful under the Constitution of the USA.
2. Private people are competent to contribute private funds to effective charities.
3. Private people funded contributions to charity over time decrease the number of people dependent on private charity.
4, Private people funded contributions to charity tend to buy the personal satisfaction of helping people when they require help.