On Wed, 28 Jan 2009, Doug Henwood wrote:
> <http://www.huffingtonpost.com/2009/01/27/stimulus-features-tax-cut_n_161170.html>
>
> Stimulus Includes Tax Cuts That Obama Economists Panned As Ineffective
> Thomas B. Edsall
>
> January 27, 2009 08:46 AM
>
> At least $23.8 billion in corporate tax breaks have been included in the $825
> billion economic recovery package in order to win backing from key business
> groups and their Congressional allies, even though the team that put the
> legislation together believes the breaks have little value in stimulating the
> economy and creating jobs.
If the price of passing an $825B bill is increasing it by less than 3% with temporary two-year tax breaks, that would be the one of the most pork-free bargains anybody ever drove through Congress.
It also underlines how the vast bulk of the $275B of tax cuts in this bill weren't put there to woo Republicans and aren't doing so. They hate 'em. That doesn't make 'em good. But they're in there because Obama and Christy Romer deeply believe in them. They're trying to sell them to the Repugs, and sell them as a pre-emptive concession. But the Repugs aren't buying.
In Obama's case, it seems clear that, whether for deep reasons or shallow, he deeply believes the "middle class tax cuts" he promised during his campaign are brilliant politics and he wasn't going to let this once-in-a-term chance go by to pass them. Less bang plus great politics for him is a net plus. (And I think we must admit, considered apart from their use as a stimulus, and coupled with the eventual raise in the upper tax bracket, on their own they're perfectly acceptable liberal tax breaks for making the tax code slightly more egalitarian: $500 cut in the payroll tax rather than the income tax; increase in EITC; refundable child care and college credits so that even people who don't pay income tax get them.)
Basically I think Obama thinks of this as a $600B stimulus program plus half of his tax program passed on greased lightening -- with the other half being mostly letting the Bush tax cuts expire. And bam, one big thing on the todo list checked off.
In Romer's case, it seems she simply doesn't believe what everyone else believes, namely that spending has a bigger multiplier than tax cuts:
http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html
By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. The puzzle is that, taken together, these findings are inconsistent with the conventional Keynesian model. According to that model, taught even in my favorite textbook, spending multipliers necessarily exceed tax multipliers.
<end quote>
The Romer & Romer paper is here: http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf
I wouldn't be surprised if this was part of why Obama hired her, because she made an economic case for something he wanted to believe.
Michael