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Posted at 6:00 PM ET, 12/ 8/2010

Reconciliation

By Ezra Klein

Recap: Elizabeth Edwards's impressive legacy; the GOP's next hostage; remembering Elizabeth Edwards; and Rep. Peter Welch on why he opposes the tax cut deal.

Elsewhere:

1) Brian Beutler is right: Whatever the merits of this deal, most on the Hill were expecting a much worse deal last week. The odds were on a full extension for between one and three years, with perhaps a six-month extension of unemployment benefits.

2) How Democrats screwed this up back in July.

3) What FDR knew.

4) Some good tax charts.

5) Mike Konczal has concerns.

I'll be talking tax cuts with Lawrence O'Donnell and friends at 10 p.m. Eastern tonight.

By Ezra Klein  | December 8, 2010; 6:00 PM ET
 
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Comments

3. This is full of errors.

"These moves sprang from a misguided fear of inflation in the wake of the rapid rate of economic recovery under the policies of the New Deal."

There was a rapid recovery after we left the gold standard and stablizied the financial system in March/April 1933. Industrial production was up 57%. Another three months at that monthly growth rate (12%), and industrial production would have cleared the 1929 high. However, the NIRA was passed and that sealed the recovery's fate.

The recovery was repeatedly throttled by the new deal.

From July 1933 to May 1935 (beginning to end of NRA), industrial production shrank 3.15%.

http://research.stlouisfed.org/fred2/graph/?id=INDPRO

http://www.themoneyillusion.com/?p=48

"And finally, by 1941 there was the overwhelmingly empirical evidence provided by the massive federal spending that went into the emerging war effort, which ultimately brought unemployment down to less than 1% and would lead to the enormous wartime and postwar expansion of the US economy."

There is emprical evidence that if you want to make a ton of tanks, guns and fighters, you can direct the economy to make a lot of tanks, guns and fighters. The Soviet economy could do this too, though their success in producing T-72 tanks and MiGs doesn't mean their economic policy was optimal. The wartime economy had to ration private sector consumption.

Drafting 10%-20% of the labor force also helps keep unemployment low. I suppose being in the military counts as having a job, though there wasn't much choice about that job and there was a fairly high risk of being killed.

Posted by: justin84 | December 8, 2010 7:14 PM | Report abuse

Ezra, enjoyed you and the others on The Last Word last night, although I think Lawrence got a bit shrill at times and lectured the panel a bit much.

One point. Lawrence made a big deal over the the rate on the lowest incomes increasing by 50% (10-15) if the tax cuts did sunset. I think we both know that is really not true.

In a simplified example, a family of four earning $50K a year, getting the standard deduction and 4 personal exemptions ($26K) would see their taxes increase by a whopping $119.

A very low income family of four earning $26,000 or less would, of course pay no income tax under either the Bush or Clinton rates.

The same family earning, say $34K or so would pay 50% more, but it would only up their taxes by about $400/year.

No surprise to either of us, the Bush taxes weren't designed to significantly benefit households under the median income, so their repeal really doesn't affect them drastically. Lawrence knows the brackets, but probably doesn't do his own taxes, I guess.

Granted, repeal would be felt, but I'm betting three-quarters of American households would see withholdings of $45 or less per paycheck.

Finally, Lawrence mentioned the technical impossibility of changing tax rates during the tax year. That's just silly, it's a math problem. Filing doesn't occur for another year and the IRS can handle it.

The politics of going into 2011 of course are another matter.

All the best. Keep writing. You're pretty seasoned to be so young.

Posted by: gingles | December 8, 2010 7:55 PM | Report abuse

Can someone address why the payroll tax deduction doesn't apply to the Self-employment tax? We're supposedly one of those small business that are so important to the economy, but the payroll tax reduction won't apply to the SE tax....

Posted by: oreally1 | December 8, 2010 8:23 PM | Report abuse

Here is what I have not seen addressed about the tax cuts: The idea that in two years Democrats will try to end them. How could that possibly be? Democrats won't control the House, where a bill needs to originate. OK, so somehow a bill does come up: then, over 20 Democratic senators will be up for re-election. This time around, a handful up for re-election, including my Senator Patty Murray, prevailed upon Harry Reid to forgo a vote. The pressure next time will only be greater to make the cuts permanent, which effectively they are. The Republican plan in 2001 worked.

Does the President have anyone in the White House thinking what their next steps are? Do they know what strategy is? Right now, Obama is laying the groundwork for his own retreat on Social Security and Medicare, becuase the Repbulicans are continuing to "starve the beast". He is playing into their hands, which is why they like this deal. They are in for the long haul, while Democrats only play for the next couple of months at a time.

Posted by: Poster3 | December 9, 2010 1:03 AM | Report abuse

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