"Zandi Analyses Show "Democratic" Measures in Tax Cut-UI Deal Boost Economy"

[Clio the Leo]

Zandi Analyses Show "Democratic" Measures in Tax Cut-UI Deal Boost Economy, "Republican" Measures Add to Deficit Risk
By Hannah Shaw and Chad Stone

As a result of the tax cut-unemployment insurance legislation that President Obama signed into law last week, economic forecasters have substantially upgraded their outlook for 2011 (see the box on page 2).An analysis of the compromise by Mark Zandi, the chief economist for Moody’s Analytics, indicates that this greater optimism stems largely from the longer extension of federal emergency unemployment insurance (UI) programs than forecasters had expected, the extension of various improvements enacted in 2009 in several tax credits for low- and modest-income families, and a reduction in the payroll tax.
By contrast, the extensions of the upper-income Bush-era tax cuts and a substantially weakened estate tax will provide little or no boost to the economy in the short run; moreover, those extensions increase the risk that such measures will ultimately be made permanent and thereby deal a setback to efforts to restore long-run fiscal balance.

In a December 8 analysis of the compromise legislation,<1> Zandi finds that, compared with Moody’s pre-compromise economic forecast, the deal would add 1.2 percentage points to economic growth and 1.6 million jobs to payroll employment in 2011, while lowering the unemployment rate by 1.2 percentage points. (Moody’s pre-compromise forecast already assumed enactment of several measures that were part of the compromise, most notably extension of the “middle-class” tax cuts. Please see the box on page 4 for a more detailed explanation of the measures in the compromise.)

Zandi also finds that what he terms the “Democratic Proposals” in the package — the 13-month extension of UI benefits (Moody’s pre-compromise forecast assumed only a three-month extension), the extension of various refundable tax credit improvements enacted in the 2009 Recovery Act, the reduction in the payroll tax, and the “expensing” provision for businesses — account for 1.1 percentage points of the 1.2 percent boost to real economic growth in 2011, 1.4 million of the 1.6 million-job increase in payroll employment, and 1.1 percentage points of the 1.2 percentage-point reduction in the unemployment rate.
In other words, Zandi estimates that about 90 percent of the expected improvement in economic and job growth and the reduction in the unemployment rate will be due to the UI and tax provisions the Administration promoted, while the high-end tax provisions will have only very small economic impacts.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3349

[rfranklin]

1. Well, there's a revelation!

Isn't that what we all knew since the Bush tax cuts never created a single job? And the Regan-Bush "trickle down" was equally useless!