Just kidding - it’s a big deal! So what is the deal with the tax deal? Well I’m sure we’ve all read about the details (just in case, here’s a quick overview):
- Bush tax cuts: Most of the current tax rates on income, dividends, and capital gains will be extended for the next two years.
- Stimulus programs: These were set to expire this year, but have been expanded and extended - including college tuition deductions, the child tax credit, and the earned income tax credit.
- Estate tax: Estates worth more than $5 million are taxed at 35%. (history: 2009 estate tax was 45% for >$3.5 million. 2010 estate taxes were none.)
- Payroll taxes: A one-year 2% cut in payroll taxes paid by employees.
- Businesses tax credits: Businesses can deduct 100% of the cost of new investments for the next two years.
- Unemployment benefits: This was set to expire this year, but has been extended by 13 months.
- The cost: Projected between $700 - $900 billion. Billed to the national deficit.
But I was curious about the various viewpoints of economists (and others) whose opinions I entertain. So I went ahead and aggregated my google reader.
Brad DeLong thinks it’s “low bang-for-buck.”
Paul Krugman is disappointed but not bitter. He projects an increase in GDP by 0.7 percent and a decrease in unemployment by 0.35 percentage points. He also believes it to be too short-sighted, with programs ending in 2012 under the assumption of a strong recovery by late 2011. We already made that mistake, he said, with the original stimulus.
Robert Reich says it’s an abomination. He seems to believe it only serves to concentrate wealth even more. It will cost $900B, the majority of that going to the wealthy. And it will do nothing to stimulate the economy.
Greg Mankiw is generally pleased. The plans for short-run recovery, he thinks, are consumption-based. But he proposes reducing the employer’s share of payroll taxes, rather than decreasing the employee’s share. This will be more impactful than hoping for increased consumption, because it will reduce the cost of hiring and thus increase employment, as well as increase business investment.
Ezra Klein thinks it’s imperfect, but not that bad. Most of the money will be spent keeping previous stimulus programs in effect that would have otherwise expired. This is good for economic recovery, but does nothing for the deficit. He also believes it to be a “hopeful sign” that a compromise was arrived upon.
Lane Kenworthy breaks it down into political and economic logics. Tax breaks for the rich were exchanged for extension of unemployment benefits and tax reductions for low and middle-income Americans. Tax breaks for the rich will help the economy, though only slightly. Politically speaking, he thinks compromising hurts Obama politically.
Barry Ritholtz thinks it’s too small to do the job. He thinks the two parties got what they wanted — the Republicans extended Bush tax cuts and got an estate tax plan they like; the Democrats got extended unemployment benefits, a cut in payroll taxes, and some other tax credits. He adds that he would have wanted a full payroll tax holiday and a temporary exemption for repatriation of money held overseas by US companies.
Bloomberg loves the compromise. It’s exactly the kind of coming together that we need in Washington, he says.
Wall Street economists are raising their GDP forecasts in light of the deal.
And that’s it (for now)! The WSJ also has a list including views from Goldman Sachs and others.