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Obama: Proposed Tax Deal Makes Dollars And Sense

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Obama: Proposed Tax Deal Makes Dollars And Sense

Politics

Obama: Proposed Tax Deal Makes Dollars And Sense

Obama: Proposed Tax Deal Makes Dollars And Sense

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The Obama administration is hoping to persuade skeptical lawmakers to approve a tax cut deal, by arguing the proposal makes dollars and sense. Many Democrats are unhappy with the measure, because it would extend Bush-era tax cuts for even the wealthiest families. Some Republicans don't like the plan's unemployment benefits, or its taxes on wealthy estates.

GUY RAZ, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Guy Raz.

MELISSA BLOCK, host:

And I'm Melissa Block.

President Obama has a sales job on his hands. The tax cut deal he struck with Republican leaders has plenty of skeptics. Congressional Democrats don't want to support the measure because it would extend Bush-era tax cuts for the wealthiest Americans. And some Republicans don't like the plan's unemployment benefits or the billions of dollars it would add to the deficit.

As NPR's Scott Horsley reports, the president's response to both sides is the same and quite simple: Do it for the economy.

SCOTT HORSLEY: The White House circulated a memo this afternoon summarizing economists' take on the tax cut deal. President Obama says many have been pleasantly surprised at what it would do for the nation's still sluggish job growth.

President BARACK OBAMA: You've just had economists over the last 24, 48 hours examine this and say this is going to boost the economy. It is going to grow the economy. It is going to increase the likelihood that we can drive down the unemployment rate.

HORSLEY: Indeed many economists agree the plan would provide some lift for the economy, using hundreds of billions of borrowed dollars. But tax policy analyst Michael Linden of the Center for American Progress, a think tank friendly to the administration, says not all of those dollars would provide the same payoff.

Mr. MICHAEL LINDEN (Tax Policy Analyst, Center for American Progress): Definitely not. There are some things that work better and there are some things that are quite a bit less efficient. So among the things that are in this tax cut deal, the unemployment insurance extension is by far the most efficient way to increase GDP and therefore jobs.

HORSLEY: That's because people who are out of work typically spend most, if not all, of their unemployment checks quickly on things like groceries and rent, creating a kind of ripple effect.

Mr. LINDEN: In other words, for every dollar that you spend on unemployment insurance benefits, you get about $1.50 in wider economic growth.

HORSLEY: Tax cuts for the rich also boost the economy. But Linden says the wealthy are likely to save much of their extra cash. So the ripple effect is less pronounced, like a pebble dropped in a pool of motor oil instead of water.

Mr. LINDEN: That doesn't mean they won't do anything. It just means that we're getting a lot less bang for our buck.

HORSLEY: If a dollar spent on unemployment benefits triggers a buck and a half in economic activity, Linden estimates a dollar spent on high end tax cuts returns only about 40 cents. Cutting payroll taxes, which is another big piece of the president's deal, falls somewhere in the middle, providing a smaller boost to the economy than unemployment benefits, but a bigger payoff than tax cuts for the rich.

Linden argues if the government used the $120 billion it plans to give to wealthy taxpayers and instead provided a bigger payroll tax, it could fuel half a million more jobs for the same price. But President Obama says that was not an option, unless he gave Senate Republicans the tax cuts for the rich they wanted, everyone's taxes would've gone up next month.

Mr. LINDEN: The choice for the president was extend the tax cuts for everybody or not. And I think the answer to that question is quite clear. It's a no-brainer.

HORSLEY: Chief economist Nariman Behravesh of IHS Global Insight says allowing all the Bush tax cuts to expire would've drained nearly $500 billion from people's pockets over the next two years.

Mr. NARIMAN BEHRAVESH (Chief Economist, IHS Global Insight): And that would have been a terrible mistake at a time when the economy's this weak. So one way to look at this package is to say at a minimum, it removed a major - potential major headwind for the U.S. economy at a bad time.

HORSLEY: President Obama says that's why he went along with an admittedly imperfect deal and why he's urging his fellow Democrats to set aside their objections.

Pres. OBAMA: A long political fight that carried over into next year might have been good politics, but it would be a bad deal for the economy and it would be a bad deal for the American people.

HORSLEY: One of the president's top economic advisers warned this afternoon, if this deal goes down to defeat, it would significantly increase the risk of a double dip recession.

Scott Horsley, NPR News, the White House.

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