Tax Relief For All, Except For Maybe Congress

On Friday, President Barack Obama signed a controversial tax cut package into law, calling it "a package of tax relief that will protect the middle class, that will grow our economy and will create jobs for the American people." Host Scott Simon talks with New York Times economic columnist David Leonhardt.

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SCOTT SIMON, host:

This is WEEKEND EDITION from NPR News. I'm Scott Simon.

U.S. Senate is in session today, the final days of the lame-duck session. It could take action on a number of items, including don't ask, don't tell. That's the ban on gays serving openly in the military.

Yesterday, President Barack Obama signed that tax cut package that was a result of a compromise he reached with congressional Republicans but riled a lot of his own Democrats. During the bill signing ceremony, Mr. Obama said the new legislation would help the middle class.

For more, we're joined by David Leonhardt, economic columnist from the New York Times, joins us in our studios. Thanks so much for being with us.

Mr. DAVID LEONHARDT (Economic Columnist, New York Times): You're welcome. Good morning.

INSKEEP: And you've said this deal marks a shift for both parties.

Mr. LEONHARDT: Yeah, it does. For the Democrats and President Obama, it's really a turn back toward a focus on the immediate condition of the economy. They were elected in November '08, the recession was really at its nadir at that time, and they spent the transition and the first few months in office focusing on stopping this crisis and recession, and largely succeeded.

And at that point they turned toward longer term things - health care reform, financial regulation - and hoped essentially the improvement in the economy would continue. And they were wrong about that; it didn't continue. And so, or it continued only for a little bit.

And so by the time you get to the spring of 2010, the recovery starts to stall out. And really we have had only no economic progress this year on the short-term stuff. The Democrats were very much punished for it at the polls. And with the expiration of the Bush tax cuts, the Democrats realized that extending the Bush tax cuts for the high end and cutting the estate tax were very important to the Republicans, and that they could negotiate essentially a second stimulus with that, and that's what this is.

For the Republicans, this is a switch from basically saying no to everything during the two years when they didn't control any of Congress, to deciding that they wanted to achieve some of their long-term goals here, which is cutting the estate tax and the high-end Bush tax cuts. And so you see the Republicans focusing more on long-term policy stuff and the president and Democrats focusing more on the immediate condition of the economy.

SIMON: Now, I'm going to fight a smile as I say this, but does this signal a new bipartisan approach to economic policies? And I fight this smile - you know, maybe we should remind ourselves that initial bailout package was bipartisan too.

Mr. LEONHARDT: Yeah, I think fighting the smile is right. It probably does not signal a new bipartisan approach. There was a forcing mechanism here, which is if Congress and the president didn't do anything, taxes went up for everyone, which neither party wanted. And so this is an instance in which they added nearly a trillion dollars to the deficit by each getting some things that they wanted. It's much easier to have bipartisan agreement by giving away goodies, which is what this package does.

It's not to say it's not the right thing to do, if you had to choose between doing it and not doing it, but it's much easier to do that than to get bipartisan agreement on tougher stuff like cutting the deficit.

SIMON: If this plan encourages spending and that stimulates the economy and that creates more jobs, who gets the credit?

Mr. LEONHARDT: My sense is that while there are always some nuances to this, the president - whether it's a Democrat or a Republican, in this case obviously it's the Democrat - gets the credit or the blame for the economy. So yes, it's true that if the economy starts improving again now, the Republicans will be able to say, hey, it's improving because of this deal that we helped negotiate.

But really, I think, when you look at history, when you look at President Clinton being reelected in 1996, the first President Bush being defeated in 1992, President Reagan being reelected in 1984 - incumbent presidents get credit for a good economy and blamed for a bad economy. And I think to a large extent, that's why this deal was in the political interest of the White House.

SIMON: Is it good economics?

Mr. LEONHARDT: Well, it's a mix. I think if you had to choose between doing it or not doing it, you would need to do it. If you were a member of Congress and had to just decide yes or no, you'd want to vote yes on this from my perspective. Because we are at risk of a really weak economy for a long time. But it's certainly not the most effective way you could spend this amount of money to encourage spending.

The estate tax, for example, is not at all an effective form of stimulating the economy. And even some things like the payroll tax cut, that's just putting more money in people's paychecks and it's not necessarily encouraging them to spend. Some significant portion of that may be saved. And so this is by this is nowhere near the ideal form of stimulus, but it's better than nothing.

SIMON: David Leonhardt, economics columnist for the New York Times. Thanks so much for being with us.

Mr. LEONHARDT: Thank you, Scott.

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