Tuesday, December 6, 2011

Republican "Stimulus"

What are the worst ways to stimulate the economy? The ways Republicans suggest doing it.  Bruce Bartlett:

Keep in mind that these results are symmetrical. A policy with a high multiplier, such as government purchases, will reduce the gross domestic product by exactly the same amount if it involves spending cuts. A tax cut with a low multiplier will have an equally small negative economic effect if it is instead done as a tax increase.
This would suggest that one of the worst ways to cut spending, from a macroeconomic point of view, would be to do it the way Republicans proposed last week: by cutting government employment. Judging by the table above, cutting taxes for lower- and middle-income people and paying for it with higher taxes for higher-income people, as Democrats have proposed, is unambiguously stimulative.
In any case, the Republican position is politically weak. Polls consistently show that a large majority of Americans favor higher taxes on the rich. For example, the New York Times/CBS News polls in September and October found that about two-thirds of Americans would raise taxes on households earning $1 million or more to reduce the deficit; only 30 percent were opposed.
Growing numbers of millionaires and billionaires have gone on record as favoring higher taxes on the rich, because they can afford them and think they’re necessary to deal with our nation’s fiscal problem, which is largely due to historically low revenues.
Of course, I'm not sure if the Republicans are dumb or are trying to sabotage the economy.  Since the economy is struggling mightily, and the only folks with money to spare are extremely wealthy, I only see one way to decrease the deficit without dragging down the economy.  The Republican strategy will send the economy into cardiac arrest.  Maybe that is what they want.  But as Bartlett says, it isn't whether taxes increase on the wealthy, it is how they increase on the wealthy.

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