Tax Cut Compromise is Stimulus 4 Through Kabuki Theater


“What’s in a name? That which we call a rose
By any other name would smell as sweet.” – Juliet (from Romeo and Juliet)

During the fall we had repeated (here, here, and here) calls for additional “stimulus” spending.  Experts even attempted to quantify how much was needed, as if economy were that easily controlled and manipulated. 

Arguments for additional direct spending were tired and worn.  The American people were in no mood for more spending (witness the election results).  It was on to new arguments and distractions.

Economists have long argued about the most effective way to use government spending to influence aggregate demand (which is what stimulus is).  In Capitalism and Freedom, Milton Friedman took the position that if the government is going to “spend” to prime the economy the most effective way to do it was tax cuts – especially cuts to the payroll tax which gives people a sense that their pay has gone up.

So we got the tax cut compromise; a combination of temporary tax cut extensions, a one year cut in payroll taxes, additional unemployment benefits, new business tax credits, and some additional spending.

The expiring tax cuts were the perfect vehicle to enact such a stimulus . . . without ever using the word.  Kabuki theater ensued.  Both sides put on their make-up and costumes, made their respective standard playbook arguments, emoted, gnashed teeth, enacted the bill, and quietly moved on to mutual back-slapping.

We can debate whether it was a good idea.  I, for one, am skeptical.  But we should not be misled by its name.  The “Tax Cut Compromise” was stimulus package 4.

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4 Responses to Tax Cut Compromise is Stimulus 4 Through Kabuki Theater

  1. willem says:

    band-aid approaches will not solve our deep financial crisis which should be solved first
    namely the outrageous national debt, doubled under Reagan and again under BushW. and soon to be raised again under Obama. Wish the entire population and all business
    corporations had the guts to charge ourselves enough of a levy proportionately and fairly so as to pay off the bulk of it, before creditor RedChina asks us to pay our bills.

  2. Eric says:

    The stiumulative effect from the so called “Bush tax cuts” happened ten years ago when they were originally enacted. There will be no stimulatove effect from simply maintaining the status quo with regard to tax rates. If they want stimulus, we need more tax cuts – not just a temporary extension of the current tax rates. These people are idiots.

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