Most of us have seen the details in the papers – the compromise would dump almost 900 billion dollars into the economy over the next two years, most of it tax cuts and unemployment benefits. Liberal democrats call this bill a sellout to the rich, and are threatening the president with retribution. This doesn’t seem constructive, as the real debate should be about (1) whether the bill will actually stimulate the economy in a big way, as most conservatives believe, and (2) is the price tag (nearly a trillion dollars added to the deficit) worth it?
Extending unemployment benefits (about 60 billion) is a no-brainer. The unemployed use their checks to pay their bills and shop for food, so the money goes directly into our economy. The potential benefits of the Bush tax cut extension are less clear. Low income families will use most of the cuts (460 billion) to continue buying goods and services. The rub comes with the extensions for the wealthy (80 billion, plus 70 billion in estate, or ‘death’ tax reductions). Economists are divided on whether this money is stimulative, or just goes into bank and trust fund accounts. The one year Social Security tax reduction is intriguing, though, as it benefits the middle class the most. But, will the middle class go on spending sprees in 2011 with this ‘rebate’, or will they pay down debt or save it? I’m inclined to dump my cut (should the bill pass) into my daughter’s college fund, which isn’t very stimulative.
Why isn’t congress only passing the portions of this bill that are guaranteed to help the economy? Because congress is full of politicians – nothing simple and straightforward happens there. Republicans, who believe strongly in supply-side economics (money and prosperity flow downhill from wealthy companies and individuals), have tied unemployment benefits to extending the Bush tax cuts for the wealthy. Also, our Senate has degraded to the point where only bills with supermajorities (60 votes or more) can pass, forcing compromise between the parties.
I am torn in many ways on this bill. In spite of economists declaring the recent recession over, there are over 8 million people who lost their jobs in the recession still looking for work. Consumer confidence remains stubbornly low. More stimulus may be needed to nudge our economy to the point where it becomes self-sustaining. However, our debt keeps growing, and borrowing more money than necessary to give rich folks tax breaks doesn’t seem like a great idea.
After much reflection, I’m inclined to support this bill, and caution liberal Democrats that recent polls seem to show that most Americans do as well. The recent election is also a clear sign that Americans want compromise. Trashing the rich and the president is not helpful for the country right now, and I encourage my liberal friends to save their anger for 2012, when we’ll all have this debate again, hopefully under better economic conditions.