The problem is that they’re not reducing marginal tax rates on large and small businesses or individuals. Their tax credits will be two-year’s worth, not permanent. There will be no incentive effects to maximize growth. And many of the tax cuts are refundable credits, which really are a form of government spending.
So it’s not a supply-side package. However, I’ve really never met a tax cut I didn’t like. And any tax cut is better than a spending increase since private companies and individuals will at least get the money instead of government.
This is the interesting part of the Obama plan. Somewhere in there the tax cuts will have a small positive economic effect. I would have designed it differently, but then again Team Obama won the election. I guess I could say it could have been worse.
Of course, Team Obama will have to contend with the sticker shock of a $1.2 trillion deficit for 2009, just printed by the Congressional Budget Office. And that’s before the Obama stimulus plan. But I don’t think Republicans really have a leg to stand on with the deficit argument -- or for that matter the spending argument.
Yes, Obama is raising the ante, and the new numbers are just about over the edge. But a lot of that new deficit is TARP money that should be scored as investment -- not real spending. And in view of all the economic pessimism out there, I doubt if the public is very worried about deficits.
What’s most regrettable is that congressional Republicans have yet to make the alternative case. They haven’t pressed for marginal tax-rate cuts as an option to Obama’s credits. So far, the GOP is me-too. They’ve offered an echo instead of a choice.
Meanwhile, polls now say the public favors Obama’s plan by 55 to 65 percent. His personal approval rating is even higher. And he’s being politically astute by reaching out to Republicans. He has virtually removed partisan rhetoric. Simply put, Obama is in the driver’s seat right now.
Sure, the Democratic Congress may mangle Obama’s plan. They might even repeal the Bush tax cuts this year. So there is considerable uncertainty about the details of the final package. But I must say, a crafty Obama is doing his best top employ his version of the Reagan tax-cut plan. Obama talks big government. But so far his program actually reduces the government-spending share and increases the private tax-cut share.
Very interesting.