Austerity Economics: Tax Cuts, Jobs and Deficits

Jeff Madrick

Triple Crisis blogger Jeff Madrick was the lead author on a report issued last week by the Citizens’ Commission on Jobs, Deficits and America’s Economic Future, which takes issue with many of the recommendations from President Obama’s deficit commission.

It seems now that all of Washington is focused on the likely level of unemployment in 2012. As well they should be. The White House, according to the all-knowing Washington press corps, says they always had it in focus. Sure. The press corps believe what they are told.

But, despite austerity economics, at least we have a bit of stimulus out of the new tax compromise engineered by the President and Republicans. The surprise is the payroll tax cut. A rough guess is that over two years, the stimulus on balance will add half a million jobs. Figure a cut in the unemployment rate of 0.3 to 0.4 percent. The estimates that already included the extension of the tax cuts, except for those earning above $250 k, had the unemployment rate in 2012 on average around 8.25 to 8.5 percent.

The best we can expect is an unemployment rate of 8 percent come election day or perhaps slightly lower. Sometimes economies hit a growth threshold and surprise on the good side. Maybe this small stimulus will put us over. Given the degree of leverage and the housing problems, it would be hard to count on. But there are lots of business profits around.

The rub— and everyone knows it— is that the renewal of the tax cut debate will be during the presidential campaign. Extension is a sure thing. The rich get richer— again. And any dealing with the budget deficit will come out of the hides of Social Security and Medicare beneficiaries.

4 Responses to “Austerity Economics: Tax Cuts, Jobs and Deficits”

  1. As an activist political economist, I can see the advantages of payroll tax cuts for lower echelons. However, I would suggest that developments in expanding the local scope of entrepreneurship such as the 1994 Riegle Community Development Act, or the 1978 Act which created the National Co-op Bank, are necessary to create businesses which show responsible and sustainable accounting philosophies and practices. Laws such as the Organic Food Act of 1990 also need extensions, to encourage the parallel industrial technologies and models which follow nothing so much as health food stores. After all, Denmark’s wind technology prowess developed as community-oriented wind co-op partnerships there spurred the technology, followed by Germany, Spain, and the U.S.
    Business profits which follow the conventional models are easily misleading, as we have seen in the legislation which permitted the corporate fiascos from the Savings and Loan Crisis and the junk bond crisis of the 1980s, the Enron/WorldCom crises of the early 2000s, and the 2008 crisis in the financial industry, for example.
    Herman Daly’s ecological economics, and David Ellerman’s employee ownership economics make strong foundations for these policies, I would suggest.

  2. […] Economics: Tax Cuts, Jobs and Deficits (Triple Crisis) Roosevelt Institute Senior Fellow Jeff Madrick is glad to see a little more stimulus, but shares […]

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  4. […] Economics: Tax Cuts, Jobs and Deficits (Triple Crisis) Roosevelt Institute Senior Fellow Jeff Madrick is glad to see a little more stimulus, but shares […]