Reports this morning indicate that stimulus plan of President-elect Obama will include as much as $300 billion in tax cuts for workers and businesses:
The legislation Mr. Obama is developing with Congressional Democrats will devote about 40 percent of the cost to tax cuts, including his centerpiece campaign promise to provide credits up to $500 for most workers, costing roughly $150 billion. The package will also include more than $100 billion in tax incentives for businesses to create jobs and invest in equipment or factories.
msnbc.com
Today, Nobel Prize winning economist Paul Krugman asks: Is Obama relying too much on tax cuts?
More, after the fold.
Krugman explains that the timing of public investment (it takes a while for the effects to be felt) provides "a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one." Krugman believes the numbers reported sound too high for the economic reasons to include some tax cuts in a stimulus. Instead, it's to bring Republicans on board:
But the numbers being reported — 40 percent of the whole, two-year plan — sound high. And all the news reports say that the high tax-cut share is intended to assuage Republicans; what this presumably means is that this was the message the off-the-record Obamanauts were told to convey.
And that’s bad news.
Is Obama relying too much on tax cuts?
Krugman sees that as the wrong road:
Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.
OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition.
Is Obama relying too much on tax cuts?
Not a good sign. Pelosi and Reid may be to the left of Obama. Think about that.
Krugman concludes that, "[l]ike Barney Frank, I’m feeling a bit of post-partisan depression."
The reference to Barney Frank is based on his statement about Obama's hurtful choice of Rick Warren:
I think he overestimates his ability to take people — particularly our colleagues on the Right — and sort of charm them into being nice. I know he talks about being post-partisan. But I’ve worked frankly with Newt Gingrich, Tom Delay, and the current Republican leadership. ... When he talks about being post partisan, having seen these people and knowing what they would do in that situation, I suffer from post partisan depression.
Think Progress: Barney Frank: ‘I’m suffering from post-partisan depression.’
I am tired of government by tax cut. This is yet another portent of possible disappointment down the road. Time will tell.
Update I: The right wing, pro-business Chamber of Commerce loves the tax cuts:
TPM: U.S. Chamber Encouraged by Tax Stimulus Measures
Bruce Josten, executive vice president for Government Affairs at the U.S. Chamber of Commerce, issued the following statement today on the tax cut portion of the stimulus package as outlined in initial press reports:
"As we have stated from the beginning, the U.S. Chamber will support any measure that will speed economic recovery and put people back to work. The tax relief measures reportedly under consideration by the incoming administration and senior lawmakers as part of a stimulus package fits that criteria.
"The tax cuts are large enough to make a difference and will benefit individuals and businesses, both of which are hurting. Significant tax relief will spur consumer spending, business investment, and help jumpstart the economy.
"While the devil is always in the details, we are encouraged by this latest development. We urge Congress and President-elect Obama to consider including other tax-related measures in the stimulus package, including an investment tax credit for home purchases, repatriation of foreign earnings to help companies refinance debt, and a temporary suspension of income tax on cancellation of debt."
As Krugman said, give them a tax cut and it just whets their appetite for more.