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Thursday, August 2, 2012

Jumping Off the Tax Cliff

The expiration of the Bush tax cuts and the automatic spending cuts slated to take effect in a few months offer a rare chance to do what policymakers have not, so far, been able to do - deal seriously with the 10-year budget deficits looming over the economy. Legislators should embrace that opportunity while also tending to the short-term needs of the economy.

One could put this same point -- clearly correct, in my view -- as follows.  Suppose we take allowing the fiscal cliff changes to take effect as the baseline. Against that baseline, we need stimulus. Of course, given the ongoing unemployment crisis, we already need stimulus today. But the changes would increase the amount of stimulus that is needed. Could anyone seriously maintain that, from the standpoint of optimally designing the extra stimulus, we would have it take the form of extending the Bush tax cuts, etcetera? That view cannot be seriously defended, unless one also favors them as long-term policy.

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Comments

I don't expect objective analysis by either Bill Gale or Dan Shaviro. I really don't expect accuracy and fairness in a post that includes articles by only those two.

Posted by: Woody | Aug 2, 2012 11:02:45 AM

I expect very nearly objective analysis from Bill Gale based on what he's written over the years.

The hallmark of a hopelessly slanted author is using a current law baseline without mentioning that a current policy baseline would produce dramatically different results. Bill Gale does not insult his readers' intelligence that way. He's a sentient human with a point of view, but he tries hard to present accurate and non-misleading results. He and Len Burman are the best sources you'll ever read on the center left. They are incomparably better than the innumerable misleading partisan hack "experts". And that includes people who construct ad hominem attacks against solid articles.

Posted by: AMTbuff | Aug 2, 2012 1:29:03 PM

Bill Gale: A better approach would be to go over the fiscal cliff - that is, let the tax cuts expire and the automatic spending cuts occur - and to enact a temporary stimulus package. ... The expiration of the Bush tax cuts and the automatic spending cuts slated to take effect in a few months offer a rare chance to do what policymakers have not, so far, been able to do - deal seriously with the 10-year budget deficits looming over the economy.

AMTbuff, I usually agree with you, but not this time.

It looks to me that Gale is recommending a course of tax action based upon "current law baseline;" a course of of economic action for another failed, budget-busting, "shovel-ready," Keynesian stimulus; and actions which significantly weakens our military putting our nation's foreign interests at risk, would run our economy into a serious recession, and fails to see that budget deficits don't result because taxpayers don't pay enough already.

Bill Gale is living in a theoretical world and has failed to learn from history. His solution is not politically achievable and would be too risky if it was. And, he is definitely pro-Oama and on the left.

Milton Friedman: In the long run, government will spend whatever the tax system will raise, plus as much as it can get away with.

The "solution" is to vote out all the politicians who promise more than we can afford -- but, that's very theoretical, too.

Posted by: Woody | Aug 2, 2012 3:05:56 PM