Krugman: Is Obama relying too much on tax cuts? (questions Obama tax cuts)

[mod mom]

January 5, 2009, 7:48 AM
Is Obama relying too much on tax cuts?
I don’t know yet. But news reports this morning certainly raise questions.

Let’s lay out the basics here. Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

That said, there’s a problem with a public-investment-only stimulus plan, namely timing. We need stimulus fast, and there’s a limited supply of “shovel-ready” projects that can be started soon enough to deliver an economic boost any time soon. You can bulk up stimulus through other forms of spending, mainly aid to Americans in distress — unemployment benefits, food stamps, etc.. And you can also provide aid to state and local governments so that they don’t have to cut spending — avoiding anti-stimulus is a fast way to achieve net stimulus. But everything I’ve heard says that even with all these things it’s hard to come up with enough spending to provide all the aid the economy needs in 2009.

What this says is that there’s a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one.

But the numbers being reported — 40 percent of the whole, two-year plan — sound high. And all the news reports say that the high tax-cut share is intended to assuage Republicans; what this presumably means is that this was the message the off-the-record Obamanauts were told to convey.

-snip

http://krugman.blogs.nytimes.com/


I love this line: "Like Barney Frank, I’m feeling a bit of post-partisan depression."

[madrchsod]

1. tax cuts make little sense when there`s no money to pay for them

putting millions back to work in the next two years will generate income and tax revenue. a much smaller tax cut could help kick start the economy if they are used wisely and targeted to small business.

[Craftsman]

3. How are we going to pay for these tax cuts?

The debt is already so huge.

[mod mom]

20. It pisses me off because some knew of what was to come and are still making profits as well as large

incomes. Why should they not pay more?

[mod mom]

22. "Obama's Perilous Compromise with Wall Street Looters"

Obama's Perilous Compromise with Wall Street Looters
By Jeffrey Klein, Huffington Post

Posted on January 5, 2009, Printed on January 5, 2009

Looters have taken over America's Treasury. The executives who successfully ransacked their own banks, investment funds and insurance companies have set their eyes on Obama's stimulus. Tragically, the architects of the current economic fiasco have been placed in charge of America's recovery.
President Obama has made an enormous mistake. Instead of cracking down on serial looters and complicit regulators, he wants to guarantee the financial sector's obligations, which are several times larger than America's economy. This is a Ponzi scheme far beyond Bernie Madoff's imagination. Simply put: The government is breaking the rules of capitalism to reward the most reckless capitalists.
Is it unfair to criticize President Obama before he and his experienced team have a chance to enact new laws and regulations? For guidance on this question, let's turn to the father of capitalism, Adam Smith. Here's how Smith concludes Wealth of Nations, Book I:
"The proposal of any new law or regulation of commerce which comes from this order , ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
Consider Obama's Economic Czar, Larry Summers, who comes fresh from heading a highly secretive hedge fund. As Clinton's Secretary of the Treasury, Summers championed the repeal of the Glass-Steagall Act, which led directly to the excessive risk-taking by newly enlarged financial entities deemed too big to fail when they failed. Additionally Summers and Robert Rubin lobbied intensely for legislation signed by Bill Clinton that forbid government oversight of derivatives, the toxic instruments that have poisoned balance sheets around the world. Summers' former deputy Tim Geithner, the new Secretary of the Treasury, has supervised more recent rip-offs. He bears significant responsibility for the Lehman Brothers' catastrophe and for the flawed Fannie Mae, Bear Stearns and AIG bailouts. At Geithner's confirmation hearing, he must be asked repeatedly why the looters were rewarded and why plans giving taxpayers more equity were rejected.

-snip
http://www.alternet.org/story/117219/

[Larkspur]

2. I agree with Barney Frank on this one -- tired of post-partisan rhetoric

Barney Frank: ‘I’m suffering from post-partisan depression.’
SNIP

I think he overestimates his ability to take people — particularly our colleagues on the Right — and sort of charm them into being nice. I know he talks about being post-partisan. But I’ve worked frankly with Newt Gingrich, Tom Delay, and the current Republican leadership. … When he talks about being post partisan, having seen these people and knowing what they would do in that situation, I suffer from post partisan depression.

[Fumesucker]

4. I suffer from post partisan depression.

LOL... Great line..

[WeDidIt]

5. Krugman may understand economics, but he doesn't understand politics

The tax cuts are there to get the Republicans to sign off on it.

It's called compromise and it's the only way to move anything forward in a Senate where you have fewer than 60 seats.

[lonestarnot]

6. I hope we don't have to listen to that crap for the next 4 years.

[WeDidIt]

9. Get used to it

There will have to be enough compromise on every piece of legislation to get Republicans on board in the Senate.

[lonestarnot]

24. Oh really.

:think:

[EconomicLiberal]

7. A pipe dream.

They are Republicans. They are unlikely to sign off of anything major that Obama tries to pass in Congress.

[WeDidIt]

8. They're Republicans

They will NEVER let themselves be put into a corner where opponents can claim they voted AGAINST $300 billion in tax cuts.

[Odin2005]

17. Don;t forget that Olympia Snowe will often vote with us.

And I'm sure that Obama will be arm-twisting the GOP senators with some sanity left (like McCain and Spector) to do the same. I think McGramps will surprise a lot of people and break with his party a lot in order to protect his legacy as a maverick, but also because I get the feeling that he was disturbed by all the nut-jobs Palin riled up that wanted to kill him off so Palin would be president.

[Odin2005]

11. My thinking is that he is trying to make the Republicans look bad when if they try a filibuster

Obama will be able to say "I tried to compromise with them but they are acting like assholes". He's sending the GOP a message that if they try to be obstructionist he will make sure the American people KNOW IT and utterly humiliate them in 2010.

[Better Believe It]

13. Let them filibuster! No problem.

Don't use a real or threatened Republican filibuster as an excuse to withdraw legislation.

Wait them out .... if it takes a day, a week or month.

[WeDidIt]

15. Exactly, if they filibuster

the talking points are "the Senate Republicans are filibustering $300 billion in tax cuts".

Hell, if they vote against it the talking points next election are "<insert Republican name> voted AGAINST $300 billion in tax cuts".

Obama is stealing their meme from them.

[Odin2005]

18. Exactly!

[Better Believe It]

12. Krugman understands the politics of surrender to Republicans

"It's called compromise and it's the only way to move anything forward in a Senate where you have fewer than 60 seats."

And why didn't the Republicans need 60 seats when they controlled the Senate. Why today it seems they only need about 40 seats to run the Senate!

This sounds more like an excuse for inaction which we will hear over and over and over again as Democrats surrender to Republicans.

You know the lame excuse ..... repeat after me ..... "the Republicans will filibuster against the legislation so we had no choice but to withdraw it!"

Let them filibuster!

All filibusters end!

So eventually you will get the 60 votes needed for cloture. It might take a day or a week.

What's the problem with that?

[EconomicLiberal]

14. Amen. Obama and the Democrats are giving the GOP far too much credit.

I'm tired of the Democrats being spineless. The GOP is in the minority!

[WeDidIt]

16. The filibuster kills the package

With the tax cuts in the package, if they filibuster they are killing $300 billion in tax cuts.

[paulk]

26. if Obama is the Leader he has advertised himself to be

he can use the bully pulpit of the Presidency to convince the American people of the rightness of his positions - and public opinion will push the Republicans to support him.

Elections are supposed to have consequences and the country has rejected the Republican model in all three branches - Obama has political capital to spend - I would hope he spends it on doing what is right for the country in the face of conservative opposition rather than spending it on the next election.

[slipslidingaway]

10. Another snip...

"...Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.

OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition..."

[mod mom]

21. He's right. Dems always make concessions to appease the GOP and it always bites us

in the butt.

[slipslidingaway]

23. Agree n/t

[Mass]

19. Sigh. Expect being blasted by people who will not even bother reading the article.

[ProfessorGAC]

25. Did I Miss Something, Mass?

I don't get your post. Why the sigh? Did someone blast the OP? What did it miss here? Seems like a good portion of the posters read it.

Please help me understand your point.
GAC

[Still Sensible]

27. While the political effect is, as noted here,

to make it hard for the GOP to oppose the measure, the fact is Obama has said for quite some time that "middle class tax cuts" would be part of the plan. I don't get why some people seem to be treating this as some radical new direction from the PE.

[paulk]

28. a lot of the tax cuts in this proposal are aimed at businesses,

not the middle class, which is the compromise to get Republicans on board. This tax cut, over a two year period, would actually be larger than the Bush tax cuts.

The argument in opposition to this is that Obama and the Democrats shouldn't work with the Republicans - that any concessions to the Republicans will be seen as a sign of weakness. That the Democrats shouldn't care if the Republicans oppose their plans. That the voters gave us the playing field and that we should make the pukes play on our field instead of theirs.

IMHO, Obama needs to be a strong leader here - that's what he said he was going to be - you know, all that change we could believe in... politics as usual isn't "change".

Kissing the ass of the Republicans isn't change.