Our annual holiday kabuki special

Our annual holiday kabuki special

by digby

So we have some typically cynical kabuki going on in DC over the extension of the payroll tax cut.(I personally wish we would just send out government checks instead of enacting payroll tax cut because inevitably people are going to start complaining that SS is draining the treasury and has to be cut. But then, they're already doing that so I guess we've lost that battle.)

Anyway, here's the latest from dday. He says that for all the happy talk from McConnell about passing it, it appears the plan is to demand something odious in return to pay for it and then blame the Democrats for raising taxes when they refuse. (Sound familiar? It should, it worked beautifully last December. Look for them to hold up the Unemployment extension too, just for kicks. It's Christmas. They deserve a little fun.)

The big problem with this whole idea is that there should be no trade-off for this at all. Stimulus is supposed to put more money into the economy. Extending the payroll tax cut is just status quo, which at least won't be contractionary. But insisting that we cut something else in order to keep it going is.

Jared Bernstein has a good example of how a nation has screwed itself with misplaced austerity, the UK:

They’ve downgraded their forecast significantly for years to come, yet they remain committed to the spending cuts that are partially responsible for the downgrade.

The first figure shows the forecast for slower real GDP growth and higher unemployment as a result of the OBR’s update of their March report. Next year, for example, they expect real GDP to grow 1.8% more slowly—0.7% instead of 2.5%–a large decline and a rate that will give rise to growing unemployment, as you can see in the second figure. That one compares the forecasted unemployment rates from the March forecast with the new ones. The new ones are a lot higher and initially growing instead of declining.




























That worked out well. And considering what's happening the Eurozone, it's probably going to look a lot worse before it's over.

Now one can certainly argue for taxing some of the upper 1% to pay for the payroll tax cut extension --- they have so much money they can't spend it all so it's sitting in their accounts collecting interest. It could help the economy tremendously to redistribute it to those who will actually spend it. But cutting more spending to offset? Not a good idea.

But then, according to dday, the Republicans may not even allow that. And if they do, they will try to extract the maximum pain from the American people in the long run. The Democrats do have an argument --- and the election is coming up. But they will have to be aggressive in ways they haven't been up to now. We'll see how it plays out over the next couple of weeks.

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