No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

Not All Cuts Are Created Equal

by @ 5:15 on January 12, 2009. Filed under Economy, Politics - National.

President elect Barck Obama and team have put out what passes for “detail” in the Obama administration, about Obama’s planned stimulus plan.   You can read the plan here.

I have to give Obama and his team credit.   When Paulson came screaming that the world was coming to and end unless he got $750 billion, he only had 3 pages to outline his plan.   Obama and team, screaming that the world will come to an end unless they get $775 billion,  have managed to use an entire 14 pages to outline their plan.   Well, unless you take out the title page, table of contents and extra white space…then you’re probably down to just 9 or 10 pages.   Even so, Obama has managed to double the number of pages explaining his $775 billion plan.   I guess the extra $25 billion does buy something!

Christina Romer, Obama’s nominee for chair of the Council of Economic Advisors is one of the authors of the plan/document.  

In a paper that Romer published in 2007, she concluded that tax cuts stimulate the economy 3x the amount of the tax cut.   In other words, for ever dollar of tax cut the economy grows by $3.   In Obama’s plan however, Romer and her coauthor argue that “tax cuts” will generate less than $1 of economic stimulus for each $1 of “tax cut.”   How can those be reconciled?

The reconciliation is pretty simple; Obama’s plan has no tax cuts.   Tax cuts are permanent tax reductions.   Rather, what the plan offers is a rebate similar to what was done last year.   They are being called “tax cuts” only because the mechanism proposed to effect them is tied to taxes so as give Republicans and some fiscal conservative Democrats, cover to agree to mortgage our children’s future.

Romer  is a well known and respected economist.   That last fact she allows permanent tax cuts and one time credits to be conflated in this plan is at best, disingenuous and at worse political dishonesty.   In either event, obvious manipulation and misuse of accepted terms as these, calls wholly into question the integrity and accuracy of a plan that even according to its authors is fraught with:

uncertainty (that) is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.

Republicans in Congress ought to be smarter than to fall for a one time credit that is called a “tax cut.”   They ought to be, we’ll have to see if they are.

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