Tax Deal A Kick In The Pants For The Economy? Despite his opposition to extending tax cuts for the wealthy, President Obama said Tuesday that he made a deal to do so with Republicans because his first interest is fixing the economy. But just how much will the tentative deal stimulate the economy and help create new jobs?
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Tax Deal A Kick In The Pants For The Economy?

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Tax Deal A Kick In The Pants For The Economy?

Tax Deal A Kick In The Pants For The Economy?

Tax Deal A Kick In The Pants For The Economy?

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  • <iframe src="https://www.npr.org/player/embed/131898920/131898906" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Despite his opposition to extending tax cuts for the wealthy, President Obama said Tuesday that he made a deal to do so with Republicans because his first interest is fixing the economy. But just how much will the tentative deal stimulate the economy and help create new jobs?

STEVE INSKEEP, Host:

We put that question to NPR's John Ydstie.

JOHN YDSTIE: Economist Mark Zandi of Moody's Analytics says the total package will help the economy grow at a healthier pace and create jobs.

MARK ZANDI: Instead of a year of job growth that's insufficient to bring down unemployment - we'd still be hanging around 10 percent for the year - this will bring enough job growth to bring down unemployment in a meaningful way by year's end.

YDSTIE: But Bob Williams of the Tax Policy Center says the package includes several items that will do little for growth.

BOB WILLIAMS: Cutting the estate tax is not going to have any stimulative effect. Patching the alternative minimum tax one more year will not stimulate the economy. Maintaining the Bush tax cuts for high-income individuals will not stimulate the economy.

YDSTIE: That's because high-income taxpayers are much more likely to save their tax cut than spend it, says Williams.

WILLIAMS: We know that people who are at lower incomes spend more of an additional dollar than do high-income folks.

YDSTIE: One of the highest profile provisions in the package is a two percentage point reduction in Social Security payroll taxes. Williams says that will not provide as much stimulus per dollar as the Making Work Pay tax cut in President Obama's original stimulus bill. That's because more of the payroll tax cut will go to high-income individuals.

WILLIAMS: Single people with earnings below $20,000 will get less under the payroll tax reduction than they got under Making Work Pay. Couples earning less than $40,000 will find themselves in the same situation. Those are the people most likely to spend money and yet you're reducing the tax cuts for them and putting less money in their pockets.

YDSTIE: In all, the package of tax cuts and unemployment benefits could cost the budget about $700 billion over the next two years, according to the White House. That means the federal deficit will remain around $1.3 trillion in 2011, says Mark Zandi. But, he says, it's a reasonable course of action under the circumstances.

ZANDI: Because it ensures that the economy will gain traction and grow, and a necessary condition for addressing our fiscal problems, at least over the longer term, is a growing economy.

YDSTIE: John Ydstie, NPR News, Washington.

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