Dec 23, 2012

The incredible shrinking economy, no job deals, stimulus and inevitable that taxes on the middle-class will go up in 2013

...The White House's abandonment of the payroll tax is of particular concern to economists and advocates who believe that more stimulus is necessary while the economy continues to recover — particularly if Democrats and Republicans fulfill their stated promise of passing a major deficit reduction package that will begin some of its austerity in the near term. Of all the parts of the fiscal cliff, continuing unemployment insurance has the biggest "bang for the buck" in terms of boosting the economy, according to Moody's Mark Zandi's calculations of the fiscal multipliers. But the payroll tax holiday would boost the economy even more, as it would benefit far more households. At the cost of $115 billion, it would bolster the economy by $144 billion, according to the Economic Policy Institute. 

...the concession to Boehner makes it essentially inevitable that taxes on the middle-class will go up in 2013, reducing the average family's income by $1,000. And Obama will be hard-pressed to keep any of the $175 billion of stimulus in a final deal. Boehner has already made clear that he believes any stimulus must be paid for, diminishing the spending cuts that Obama has offered him. 
Bernstein believes that federal unemployment insurance may have some shot of making it into a final bill. Unlike, say, new infrastructure spending, it's already scheduled to expire as part of the fiscal cliff, taking benefits away from 2 million unemployed people.

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