Between the payroll tax cut and the sequester, as well as the failure to undo the first discretionary spending caps negotiated under last year’s Budget Control Act (BCA), well over half of the fiscal drag for 2013 that was actually up for negotiation1 has yet to be deactivated. This means that relative to current policy, we will have roughly 1.6 million fewer jobs by the end of 2013 than if these had been definitively extended or replaced with equivalent stimulus.
[...]
Blow-by-blow analyses of the deal can be found elsewhere, but this is the summary:
• The Bush-era ordinary tax rates were allowed to lapse for incomes more than $450,000 per year
• Some mild (but useful) base-broadening was done that would increase taxes starting on households with more than $250,000 in income
• Dividend tax rates were permanently extended at the Bush-era levels
• The estate tax was permanently set at levels far more generous to inherited wealth than before the Bush era tax cuts
• The Alternative Minimum tax (AMT) was permanently indexed to inflation to keep it from creeping down the income scale
• Some tax cuts targeted to low– and moderate-income households, as well as those paying for college tuition, were extended for five years (not permanently)
• Extended unemployment insurance benefits were passed for another year
Further, the automatic spending cuts known as “the sequester” have been postponed for two months, while the two percentage-point cut in payroll taxes that was in effect for the past two years has been allowed to lapse.
[...]
First, the pluses. Unemployment insurance benefits were extended. Given that the labor market remains weak, this is both compassionate and intelligent economic policy. The sequester has at least been postponed. And we actually will be raising more money from higher-income households going forward—and this will not slow recovery and will allow more resources for necessary public investments and social insurance programs in the future.
[...]
[T]he prospect of paying for [future spending] with a reasonable estate tax seems to have sailed because of this deal, which is a real shame. The permanent enshrinement of low dividend tax rates is bad policy, and looks especially ugly when paired with tax breaks for lower-income households that are not permanent, but sunset in five years. On the bright side, “permanent” really just means “until another Congress changes its mind,” so there’s that to hope for.
[...]
And the big minus is that the verdict on the “sequester” will be decided just as the nation hits the statutory debt ceiling. GOP members of the House of Representatives clearly are hoping this will give them leverage to force their own agenda. And it worked before. Which means that this time, the Obama administration needs to be deadly serious about not negotiating over the debt ceiling.
Josh Bivens
[...]
Blow-by-blow analyses of the deal can be found elsewhere, but this is the summary:
• The Bush-era ordinary tax rates were allowed to lapse for incomes more than $450,000 per year
• Some mild (but useful) base-broadening was done that would increase taxes starting on households with more than $250,000 in income
• Dividend tax rates were permanently extended at the Bush-era levels
• The estate tax was permanently set at levels far more generous to inherited wealth than before the Bush era tax cuts
• The Alternative Minimum tax (AMT) was permanently indexed to inflation to keep it from creeping down the income scale
• Some tax cuts targeted to low– and moderate-income households, as well as those paying for college tuition, were extended for five years (not permanently)
• Extended unemployment insurance benefits were passed for another year
Further, the automatic spending cuts known as “the sequester” have been postponed for two months, while the two percentage-point cut in payroll taxes that was in effect for the past two years has been allowed to lapse.
[...]
First, the pluses. Unemployment insurance benefits were extended. Given that the labor market remains weak, this is both compassionate and intelligent economic policy. The sequester has at least been postponed. And we actually will be raising more money from higher-income households going forward—and this will not slow recovery and will allow more resources for necessary public investments and social insurance programs in the future.
[...]
[T]he prospect of paying for [future spending] with a reasonable estate tax seems to have sailed because of this deal, which is a real shame. The permanent enshrinement of low dividend tax rates is bad policy, and looks especially ugly when paired with tax breaks for lower-income households that are not permanent, but sunset in five years. On the bright side, “permanent” really just means “until another Congress changes its mind,” so there’s that to hope for.
[...]
And the big minus is that the verdict on the “sequester” will be decided just as the nation hits the statutory debt ceiling. GOP members of the House of Representatives clearly are hoping this will give them leverage to force their own agenda. And it worked before. Which means that this time, the Obama administration needs to be deadly serious about not negotiating over the debt ceiling.
Josh Bivens
If the past four years are any indicator, you can kiss that idea goodbye before you even think of it.
First and foremost, the expiration of the payroll tax cut is projected to reduce disposable income by $115 billion, shaving 0.9 percentage points from real GDP growth and lowering employment by nearly 1.1 million jobs relative to 2012 fiscal policy.
The sequester was delayed for only two months, leaving a drag of 0.6 percentage points of real GDP if it materializes for the remainder of the year, or if the sequester is replaced with other spending cuts of a comparable magnitude (e.g., House Republicans voted to replace sequester cuts to the Department of Defense with deeper domestic cuts). This would mean a loss of 660,000 jobs relative to 2012 fiscal policy.
The phase-one BCA discretionary spending caps will ratchet down, shaving 0.4 percentage points from real GDP growth and reducing employment by roughly 530,000 jobs relative to pre-BCA law.
[...]
This debate was always about averting a recession in favor of maintaining anemic growth rates. That may have been accomplished by the budget deal, although much uncertainty surrounds sequestration and the statutory debt ceiling. But this bar for political horse-trading was always set appallingly low. The United States is still mired in a severe jobs crisis, and it’s a safe bet this jobs crisis intensifies in 2013 because of premature budget austerity and policymakers’ abdication of promoting full employment.
Andrew Fieldhouse
The sequester was delayed for only two months, leaving a drag of 0.6 percentage points of real GDP if it materializes for the remainder of the year, or if the sequester is replaced with other spending cuts of a comparable magnitude (e.g., House Republicans voted to replace sequester cuts to the Department of Defense with deeper domestic cuts). This would mean a loss of 660,000 jobs relative to 2012 fiscal policy.
The phase-one BCA discretionary spending caps will ratchet down, shaving 0.4 percentage points from real GDP growth and reducing employment by roughly 530,000 jobs relative to pre-BCA law.
[...]
This debate was always about averting a recession in favor of maintaining anemic growth rates. That may have been accomplished by the budget deal, although much uncertainty surrounds sequestration and the statutory debt ceiling. But this bar for political horse-trading was always set appallingly low. The United States is still mired in a severe jobs crisis, and it’s a safe bet this jobs crisis intensifies in 2013 because of premature budget austerity and policymakers’ abdication of promoting full employment.
Andrew Fieldhouse
If you need to have something in the deal to be indignant about, how about the payroll tax hike? Not only will it put more than [one] million people out of work, the tax itself is about the most regressive and destructive one imaginable. In a sane society we’d be talking about how to replace it, not raise it.
[...]
In the long run, we’re all dead. That being the case, I don’t think we should sacrifice the economically vulnerable to our fears for the future, including our fear that taxes might be hard to raise in that future.
Billmon
[...]
In the long run, we’re all dead. That being the case, I don’t think we should sacrifice the economically vulnerable to our fears for the future, including our fear that taxes might be hard to raise in that future.
Billmon
Charlie Pierce's First Law Of Economics — Fk The Deficit. People Got No Jobs. People Got No Money.
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