Sunday, December 12, 2010

More on the Tax Deal

Professor Paul Caron posted a wonderful compilation on the discussion about the tax bill including a meltdown by Keith Olberman of MSNBC.   The battle lines on this compromise are well established.  Ultimately while there are elements that I disagree with, I think this is a pretty good initial step.

There are certainly things to love in the proposal.  From my perspective, the continuation of the Bush tax cuts in their entirety (except for the Estate Tax which is set at a reasonable level with lower rates) is a positive development. There are also things to dislike - namely the increase in the deficit (which may actually be a bit lower than projected if indeed the reductions encourage some additional economic growth) and the extension of unemployment benefits.   The payroll tax holiday is a classic Keynesian stimulus - which I think will have little effect on growth.

I was also pleased to see that the President at least gave nodding support for the Bowles-Simpson approach which would simplify the code by lowering rates and broadening the base.  In the end the discussion we have had for the last couple of weeks on tax policy which looks a lot like Animal Farm (stylized arguments - four legs good, two legs bad) has not produced much sensible about long term tax policy.  But if this forces the political class to revisit this in two years and if it forces a more broad based discussion about how to raise revenues (not increase but how we should collect taxes), then the momentariness of the rate continuations and the increase in the deficit could be seen as a positive development.

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