Thursday, October 21, 2010

Tax cuts in the stimulus were not just a sop to Republicans

I just stumbled on an Obama campaign speech that sheds some light on his claim in the Peter Baker interview that he made more than a third of the Recovery Act tax cuts on the merits, not as a sop to Republicans.

Here's what he told Baker (filtering out an explanation of the structure of the cuts):
The way we structured the Recovery Act was based on conversations with a wide range of economists and a recognition that there wasn’t going to be a single silver bullet to restart the economy; that we were going to have to have a mix of strategies.  So, for example, because each strategy had its strengths and its weaknesses, tax cuts had the advantage of speed. You can get tax cuts out pretty quickly; people have money in their pockets; hopefully they’re spending it....

So what we did was we put together the best possible package, given that we had to do it very quickly, and we presented it to Congress as a package without much thought to the politics of it. 

Now in retrospect, I could have told Barack Obama in December of 2009 that if you already have a third of the package as tax cuts, then the Republicans, who traditionally are more comfortable with tax cuts, may just pocket that and attack the other components of the program. And it might have been better for us not to include tax cuts in the original package, let the Republicans insist on the tax cuts, and then say, O.K., you know, we’ll compromise and give you your tax cuts, even though we had already proposed them. 

And if you recall, when we initially unveiled what the Recovery Act would look like — in fact, that a third of it was tax cuts — Mitch McConnell actually was, as he phrased it, pleasantly surprised that sort of traditional Republican idea had been included. But very quickly that pleasant surprise turned into attacks on the infrastructure or the aid to the states or what have you.
A lot of Democrats may suspect that the tax cut leg of the stimulus triad was designed to mollify McConnell et al -- that Obama was naively focused on winning Republican buy-in, and this opening gesture was his chief means.  That's at least partly true, though there's probably no real separation from his policy calculations. A core element of Obama's brand is pragmatism, which he makes credible to himself, and bids to make credible to the world, by incorporating ideas from the other side.

That has always been true.  Hence, tax cuts were always part of his concept of stimulus, even before the meltdown beginning in September 2008 raised the need for megastimulus.  Here he is in Denver, January 30, 2008:
In the short-term, we need what I have consistently called for - a stimulus plan that gives the American people a tax rebate, and that also extends relief to seniors and expands unemployment insurance.
Of course, tax cuts are the commonest form of more modest stimulus, and expanded unemployment insurance is also part of the standard toolkit.   But it's worth taking a reminder that tax cuts were always going to be in the mix. In fact it may have looked needlessly provocative to leave them out. I suppose the complaint of Krugman and others on the left was that they were too large a component of the full package.

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