What’s So Good about America’s Tax Package?
The tax package agreed to by Barack Obama and his Republican opponents in the US Congress represents the right mix of an appropriate short-run fiscal policy and a first step toward longer-term fiscal prudence. Yet it remains highly uncertain how much it will boost investment and consumer spending.
PS Events: What Economics is Missing
Neglect the insights of women, particularly in economics, and society suffers. At PS’s next virtual event, What Economics Is Missing, Minouche Shafik, Dani Rodrik, Vera Songwe, and others will debate how to create the conditions for achieving genuine inclusivity in economics.
CAMBRIDGE –The tax package agreed to by President Barack Obama and his Republican opponents in the United States Congress represents the right mix of an appropriate short-run fiscal policy and a first step toward longer-term fiscal prudence. The key feature of the agreement is to continue the existing 2010 income-tax rates for another two years with no commitment about what will happen to tax rates after that.
Without that agreement, tax rates would have reverted in 2011 to the higher level that prevailed before the Bush tax cuts of 2001. That would mean higher taxes for all taxpayers, raising tax liabilities in 2011 and 2012 by about $450 billion (1.5% of GDP).
Because America’s GDP has recently been growing at an annual rate of only about 2% – and final sales at only about 1% – such a tax increase would probably have pushed the US economy into a new recession. Although the new tax law is generally described as a fiscal stimulus, it is more accurate to say that it avoids a large immediate fiscal contraction.
To continue reading, register now.
Subscribe now for unlimited access to everything PS has to offer.
Subscribe
As a registered user, you can enjoy more PS content every month – for free.
Register
Already have an account? Log in