Temporary, Timely And Targeted Does Not Mean Permanent Tax Cuts

TW: Many economists are urging the stimulus to be: temporary, timely and targeted; in order to optimize the impact of the measures. I certainly agree although I think the timely piece has been too narrowly defined down to 6-12 months when a 24-36 month horizon for certain measures is relevant given the likely depth of the contraction. Many Republicans are complaining loudly about the slowness with which some of the spending measures will impact the economy making them "untimely". Many conservatives are trying to push permanent tax cuts as the alternative Obama's plan.

The Republicans have a dilemma, their theoretician Milton Friedman is very clear on the need for the tax cuts to be permanent in order for the magical psychological impacts he attributed to the cuts to become real. Permanent tax cuts are most definitely not temporary and would greatly exacerbate our long-term fiscal challenges associated with entitlements. Therefore, the Republicans are yelling tax cut while quietly mentioning their permanent nature without the slightest effort to reconcile how they would ever fund them.

From Economist:
"THERE has been no shortage of debate in the economics blogosphere over how a stimulus package should be constructed. While some have argued strongly for government spending to be part of the bill, others have suggested that tax rebates are the only valid method of fiscal stimulus. This debate has become fierce enough to generate intellectual cage matches between rival economists.

But practically every economist out there, on either side of the debate, suggests that if fiscal stimulus is to be the order of the day, it should be temporary, timely, and targeted. You know what doesn't fare well on those criteria? This:

o Permanently repeal the alternative minimum tax once and for all;
o Permanently keep the capital gains and dividends taxes at 15 percent;
o Permanently kill the Death Tax for estates under $5 million, and cut the tax rate to 15 percent for those above;
o Permanently extend the $1,000-per-child tax credit;o Permanently repeal the marriage tax penalty;
o Permanently simplify itemized deductions to include only home mortgage interest and charitable contributions.o Lower top marginal income rates from 35 percent to 25 percent.
o Simplify the tax code to include only two other brackets, 15 and 10 percent.
o Lower corporate tax rate as well, from 35 percent to 25 percent.

That is Republican senator Jim DeMint's stimulus counter-proposal. And when that counter-proposal was submitted as an amendment to the stimulus bill, all but five Republican senators voted for it...while Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe actually decided that this was, in fact, a stupid plan.

This, in a nutshell, is why "changing the tone" will prove extraordinarily difficult—most of the opposition is quite simply using a different set of economic rules. It's also why Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe will wield a substantial amount of power in this Congress. "