I guess I should not be surprised, but the debate on the coming economic stimulus pacakge has become incredibly partisan and simplistic: if you're on the right, tax cuts are good & spending takes too long, while if you are on the left, tax cuts are bad & infrastructure spending has the most beneficial, largest multiplier effect on the economy.
Given how critical this package is, this simplistic level of debate is appalling. Importantly, it is also politically naive. Lucky for us, however, President Obama is much shrewder and is operating at a level well beyond this inanity.
Partisan Simplicity
While I'm normally a big fan of the Rachel Maddow show, here's a particularly egregious example from a progressive of tax cuts bad, infrastructure good without ever saying why or providing any specifics (given how nearly universal and common they are, I leave finding an example of the right's tax cuts good, infrastructure too slow argument as an easy excercise for the reader (hint, start here)):
<DIV><IFRAME src="http://www.msnbc.msn.com/id/22425001/vp/28820486#28820486" frameBorder=0 width=425 scrolling=no height=339></IFRAME></DIV>
Problems with the video? Watch it here.
Shrewd Poker Playing
This brings me to Noam Schreiber's very astute analysis previously posted in Obama's Tax Cut Gambit: Shrewder Than You (& I) Think:
One of the presumed rationales for leaning so heavily on tax cuts is political, the theory being that it helps you attract GOP votes ... In response to which, people like Paul Krugman argue that:
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.
I think that's mostly right as a prediction of the GOP response. But, unlike Krugman, I think that response could be a good thing for Obama and the Democrats, in that it exposes the GOP's true priorities in a way that's politically damaging to them.
By agreeing to channel up to 40 percent of the stimulus through tax cuts, Obama is essentially calling the GOP's bluff. He's saying, "You guys are making a principled argument that tax cuts can be a more efficient way to stimulate the economy. I'm accepting that argument in large part. So rather than spend a lot of money helping low- and middle-income people, I'm going to get that money to them via tax cuts."
At which point he's kind of backed them into a corner. If the GOP accepts, then great. If they turn around and say, "Well, when we said tax cuts, we actually meant tax cuts for wealthy people, not for low- and middle-income people," then it becomes blindingly obvious that they weren't making a principled argument at all. They were trying to shake Obama down on behalf of their rich cronies.
When Noam penned his piece on 11 Jan, it was a theoretical act of mind reading. Yesterday, however, Obama showed that Noam was right and that he's one clever progressive politician who does not intend to simply give in to the Right. From the NY Times on yesterday's "bipartisan" meeting:
For the first time as president, Mr. Obama also met with the leaders of both parties in Congress, in keeping with his campaign promise of bipartisanship.
Yet in a polite but pointed exchange with the No. 2 House Republican, Eric Cantor of Virginia, Mr. Obama took note of the parties’ fundamental differences on tax policy toward low-wage workers, and insisted that his view would prevail.
At issue is Mr. Obama’s proposal that his tax breaks for low- and middle-income workers, including his centerpiece "Making Work Pay" tax credit, be refundable — that is, that the benefits also go to workers who earn too little to pay income taxes but who pay Social Security and Medicare taxes. Republicans generally oppose giving such refunds to people who pay no income taxes.
"We just have a difference here, and I’m president," Mr. Obama said to Mr. Cantor, according to Rahm Emanuel, the White House chief of staff, who was at the meeting.
Mr. Emanuel said that Mr. Obama was being lighthearted and that lawmakers of both parties had laughed.
Mr. Cantor, in an interview later, had a similar recollection. He said the president had told him, "You’re correct, there’s a philosophical difference, but I won, so we’re going to prevail on that."
"He was very straightforward," Mr. Cantor added. "There was no disrespect, but it was very matter-of-fact."
And Don't Forget Economic Reality
There are two other important, less partisan points that can be made about the economic reality cleverly factored into Obama's stimulus plan. As previously posted in It's Not Direct Spending OR Tax Cuts, It's BOTH, a senior economic Obama adviser ...
... emphasized the plight Obama's team faced in crafting a stimulus, one I had noted (again, echoing the likes of Paul Krugman). Spending more than a few hundred billion dollars of government money actually isn't that easy, assuming you're determined to do it in ways that will quickly stimulate economic activity.
The advisor also made the critical point that people need to consider the unprecedented size of the package and that it's not either or, but both:
The spending versus taxes distinction is the wrong way to think about it. The question is at the margin. So one dollar of infrastructure is better than one dollar of tax cuts. But if you already have a hundred dollars of infrastructure then adding one dollar of infrastructure is a lot less effective than adding one dollar of tax cuts.
So what do you think?