Zandi on the 2012 Problem – I asked Mark Zandi of Moody’s Analytics about the 2012 problem — the fact that the tax-cut deal between President Obama and Congressional Republicans would likely reduce economic growth in 2012, as Paul Krugman and others have pointed out. Mr. Zandi agreed. “In my previous baseline I expected real G.D.P. growth of 2.8 percent in 2011 and 4.2 percent in 2012,” he wrote in an e-mail. “I’m now expecting real G.D.P. growth of 3.9 percent in 2011 and 3.4 percent in 2012.” Yet Mr. Zandi still favors the package. He explained: There are four key reasons why slower 2012 growth with the package should not forestall its passage. First, stronger growth in 2011 (particularly in the first half of 2011) will ensure that the recovery achieves escape velocity. That is, enough G.D.P. growth to generate enough job growth to bring down unemployment and propel the recovery into a self-sustaining expansion. This is a necessary condition for addressing our long-term fiscal problems. Without this additional boost, unemployment would continue to hover near 10 percent throughout 2011 and the recovery would remain very vulnerable to anything that might go wrong.
Tax-Cut Woulda, Coulda, Shoulda – Keith Hennessey, a former economic adviser to President George W. Bush, lays out how he thinks the Democrats could — and should — have dealt with the Bush tax cuts: In early 2010, pass a budget resolution conference report that creates a reconciliation bill for the President’s preferred tax policy.… This is the partisan path that would have eliminated Republicans’ ability to block the Democrats’ preferred policy. With a simple majority of the House and Senate, Democrats could have had a complete policy win. The budget resolution is a concurrent resolution that is not signed by the President. The failure to pass a budget resolution and create a reconciliation bill is entirely a failure of the Legislative Branch. Even better for the Left, the budget resolution (had there been one) could have provided protected reconciliation status only for tax changes of a certain deficit size. Congressional Democratic Leaders could have precluded the additional $700 B deficit effect of the Republicans’ preferred alternative. Thus the Democratic-preferred alternative would have needed only 51 votes in the Senate, while the Republican-preferred policy would have needed 60. That’s the margin of victory.
Text and Revenue Estimate of Tax Cut Bill – Here’s the text of the tax/unemployment insurance compromise bill being debated in Congress this week, and here’s the revenue impact estimates from the Joint Committee on Taxation.